[House Report 116-159]
[From the U.S. Government Publishing Office]
116th Congress } { Rept. 116-159
HOUSE OF REPRESENTATIVES
1st Session } { Part 2
======================================================================
REHABILITATION FOR MULTIEMPLOYER PENSIONS ACT OF 2019
_______
July 19, 2019.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Scott of Virginia, from the Committee on Education and Labor,
submitted the following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 397]
The Committee on Education and Labor, to whom was referred
the bill (H.R. 397) to amend the Internal Revenue Code of 1986
to create a Pension Rehabilitation Trust Fund, to establish a
Pension Rehabilitation Administration within the Department of
the Treasury to make loans to multiemployer defined benefit
plans, and for other purposes, having considered the same,
report favorably thereon with an amendment and recommend that
the bill as amended do pass.
CONTENTS
Page
Purpose and Summary.............................................. 11
Committee Action................................................. 12
Committee Views.................................................. 15
Section-by-Section Analysis...................................... 20
Explanation of Amendments........................................ 26
Application of Law to the Legislative Branch..................... 26
Unfunded Mandate Statement....................................... 26
Earmark Statement................................................ 27
Roll Call Votes.................................................. 27
Statement of Performance Goals and Objectives.................... 32
Duplication of Federal Programs.................................. 32
Hearings......................................................... 32
Statement of Oversight Findings and Recommendations of the
Committee...................................................... 32
New Budget Authority and CBO Cost Estimate....................... 32
Committee Cost Estimate.......................................... 33
Changes in Existing Law Made by the Bill, as Reported............ 33
Minority Views................................................... 121
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Rehabilitation for Multiemployer
Pensions Act of 2019''.
SEC. 2. PENSION REHABILITATION ADMINISTRATION; ESTABLISHMENT; POWERS.
(a) Establishment.--There is established in the Department of the
Treasury an agency to be known as the ``Pension Rehabilitation
Administration''.
(b) Director.--
(1) Establishment of position.--There shall be at the head of
the Pension Rehabilitation Administration a Director, who shall
be appointed by the President.
(2) Term.--
(A) In general.--The term of office of the Director
shall be 5 years.
(B) Service until appointment of successor.--An
individual serving as Director at the expiration of a
term may continue to serve until a successor is
appointed.
(3) Powers.--
(A) Appointment of deputy directors, officers, and
employees.--The Director may appoint Deputy Directors,
officers, and employees, including attorneys, in
accordance with chapter 51 and subchapter III of
chapter 53 of title 5, United States Code.
(B) Contracting.--
(i) In general.--The Director may contract
for financial and administrative services
(including those related to budget and
accounting, financial reporting, personnel, and
procurement) with the General Services
Administration, or such other Federal agency as
the Director determines appropriate, for which
payment shall be made in advance, or by
reimbursement, from funds of the Pension
Rehabilitation Administration in such amounts
as may be agreed upon by the Director and the
head of the Federal agency providing the
services.
(ii) Subject to appropriations.--Contract
authority under clause (i) shall be effective
for any fiscal year only to the extent that
appropriations are available for that purpose.
(c) Transfer of Funds.--The Secretary of the Treasury may transfer
for any fiscal year, from unobligated amounts appropriated to the
Department of the Treasury, to the Pension Rehabilitation
Administration such sums as may be reasonably necessary for the
administrative and operating expenses of the Pension Rehabilitation
Administration.
SEC. 3. PENSION REHABILITATION TRUST FUND.
(a) In General.--Subchapter A of chapter 98 of the Internal Revenue
Code of 1986 is amended by adding at the end the following new section:
``SEC. 9512. PENSION REHABILITATION TRUST FUND.
``(a) Creation of Trust Fund.--There is established in the Treasury
of the United States a trust fund to be known as the `Pension
Rehabilitation Trust Fund' (hereafter in this section referred to as
the `Fund'), consisting of such amounts as may be appropriated or
credited to the Fund as provided in this section and section 9602(b).
``(b) Transfers to Fund.--
``(1) Amounts attributable to treasury bonds.--There shall be
credited to the Fund the amounts transferred under section 6 of
the Rehabilitation for Multiemployer Pensions Act of 2019.
``(2) Loan interest and principal.--
``(A) In general.--The Director of the Pension
Rehabilitation Administration established under section
2 of the Rehabilitation for Multiemployer Pensions Act
of 2019 shall deposit in the Fund any amounts received
from a plan as payment of interest or principal on a
loan under section 4 of such Act.
``(B) Interest.--For purposes of subparagraph (A),
the term `interest' includes points and other similar
amounts.
``(3) Transfers from secretary.--The Director of the Pension
Rehabilitation Administration shall deposit in the Fund any
amounts received from the Secretary under section 2(c) of such
Act.
``(4) Availability of funds.--Amounts credited to or
deposited in the Fund shall remain available until expended.
``(c) Expenditures From Fund.--Amounts in the Fund are available
without further appropriation to the Pension Rehabilitation
Administration--
``(1) for the purpose of making the loans described in
section 4 of the Rehabilitation for Multiemployer Pensions Act
of 2019,
``(2) for the payment of principal and interest on
obligations issued under section 6 of such Act, and
``(3) for administrative and operating expenses of such
Administration.''.
(b) Clerical Amendment.--The table of sections for subchapter A of
chapter 98 of the Internal Revenue Code of 1986 is amended by adding at
the end the following new item:
``Sec. 9512. Pension Rehabilitation Trust Fund.''.
SEC. 4. LOAN PROGRAM FOR MULTIEMPLOYER DEFINED BENEFIT PLANS.
(a) Loan Authority.--
(1) In general.--The Pension Rehabilitation Administration
established under section 2 is authorized--
(A) to make loans to multiemployer plans (as defined
in section 414(f) of the Internal Revenue Code of 1986)
which are defined benefit plans (as defined in section
414(j) of such Code) and which--
(i) are in critical and declining status
(within the meaning of section 432(b)(6) of
such Code and section 305(b)(6) of such Act) as
of the date of the enactment of this Act, or
with respect to which a suspension of benefits
has been approved under section 432(e)(9) of
such Code and section 305(e)(9) of such Act as
of such date;
(ii) as of such date of enactment, are in
critical status (within the meaning of section
432(b)(2) of such Code and section 305(b)(2) of
such Act), have a funded percentage of less
than 40 percent (as determined for purposes of
section 432 of such Code and section 305 of
such Act), and have a ratio of active to
inactive participants which is less than 2 to
3; or
(iii) are insolvent for purposes of section
418E of such Code as of such date of enactment,
if they became insolvent after December 16,
2014, and have not been terminated; and
(B) subject to subsection (b), to establish
appropriate terms for such loans.
(2) Consultation.--The Director of the Pension Rehabilitation
Administration shall consult with the Secretary of the
Treasury, the Secretary of Labor, and the Director of the
Pension Benefit Guaranty Corporation before making any loan
under paragraph (1), and shall share with such persons the
application and plan information with respect to each such
loan.
(3) Establishment of loan program.--
(A) In general.--A program to make the loans
authorized under this section shall be established not
later than September 30, 2019, with guidance regarding
such program to be promulgated by the Director of the
Pension Rehabilitation Administration, in consultation
with the Pension Benefit Guaranty Corporation and the
Department of Labor, not later than December 31, 2019.
(B) Loans authorized before program date.--Without
regard to whether the program under subparagraph (A)
has been established, a plan may apply for a loan under
this section before either date described in such
subparagraph, and the Pension Rehabilitation
Administration shall approve the application and make
the loan before establishment of the program if
necessary to avoid any suspension of the accrued
benefits of participants.
(b) Loan Terms.--
(1) In general.--The terms of any loan made under subsection
(a) shall state that--
(A) the plan shall make payments of interest on the
loan for a period of 29 years beginning on the date of
the loan (or 19 years in the case of a plan making the
election under subsection (c)(5));
(B) final payment of interest and principal shall be
due in the 30th year after the date of the loan (except
as provided in an election under subsection (c)(5));
and
(C) as a condition of the loan, the plan sponsor
stipulates that--
(i) except as provided in clause (ii), the
plan will not increase benefits, allow any
employer participating in the plan to reduce
its contributions, or accept any collective
bargaining agreement which provides for reduced
contribution rates, during the 30-year period
described in subparagraphs (A) and (B);
(ii) in the case of a plan with respect to
which a suspension of benefits has been
approved under section 432(e)(9) of the
Internal Revenue Code of 1986 and section
305(e)(9) of the Employee Retirement Income
Security Act of 1974, or under section 418E of
such Code, before the loan, the plan will
reinstate the suspended benefits (or will not
carry out any suspension which has been
approved but not yet implemented);
(iii) the plan sponsor will comply with the
requirements of section 6059A of the Internal
Revenue Code of 1986;
(iv) the plan will continue to pay all
premiums due under section 4007 of the Employee
Retirement Income Security Act of 1974; and
(v) the plan and plan administrator will meet
such other requirements as the Director of the
Pension Rehabilitation Administration provides
in the loan terms.
The terms of the loan shall not make reference to
whether the plan is receiving financial assistance
under section 4261(d) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1431(d)) or to any
adjustment of the loan amount under subsection
(d)(2)(A)(ii).
(2) Interest rate.--Except as provided in the second sentence
of this paragraph and subsection (c)(5), loans made under
subsection (a) shall have as low an interest rate as is
feasible. Such rate shall be determined by the Pension
Rehabilitation Administration and shall--
(A) not be lower than the rate of interest on 30-year
Treasury securities on the first day of the calendar
year in which the loan is issued, and
(B) not exceed the greater of--
(i) a rate .2 percent higher than such rate
of interest on such date, or
(ii) the rate necessary to collect revenues
sufficient to administer the program under this
section.
(c) Loan Application.--
(1) In general.--In applying for a loan under subsection (a),
the plan sponsor shall--
(A) demonstrate that, except as provided in
subparagraph (C)--
(i) the loan will enable the plan to avoid
insolvency for at least the 30-year period
described in subparagraphs (A) and (B) of
subsection (b)(1) or, in the case of a plan
which is already insolvent, to emerge from
insolvency within and avoid insolvency for the
remainder of such period; and
(ii) the plan is reasonably expected to be
able to pay benefits and the interest on the
loan during such period and to accumulate
sufficient funds to repay the principal when
due;
(B) provide the plan's most recently filed Form 5500
as of the date of application and any other information
necessary to determine the loan amount under subsection
(d);
(C) stipulate whether the plan is also applying for
financial assistance under section 4261(d) of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1431(d)) in combination with the loan to enable
the plan to avoid insolvency and to pay benefits, or is
already receiving such financial assistance as a result
of a previous application;
(D) state in what manner the loan proceeds will be
invested pursuant to subsection (d), the person from
whom any annuity contracts under such subsection will
be purchased, and the person who will be the investment
manager for any portfolio implemented under such
subsection; and
(E) include such other information and certifications
as the Director of the Pension Rehabilitation
Administration shall require.
(2) Standard for accepting actuarial and plan sponsor
determinations and demonstrations in the application.--In
evaluating the plan sponsor's application, the Director of the
Pension Rehabilitation Administration shall accept the
determinations and demonstrations in the application unless the
Director, in consultation with the Director of the Pension
Benefit Guaranty Corporation and the Secretary of Labor,
concludes that the determinations and demonstrations in the
application are unreasonable or are inconsistent with any rules
issued by the Director pursuant to subsection (g).
(3) Required actions; deemed approval.--The Director of the
Pension Rehabilitation Administration shall approve or deny any
application under this subsection within 90 days after the
submission of such application. An application shall be deemed
approved unless, within such 90 days, the Director notifies the
plan sponsor of the denial of such application and the reasons
for such denial. Any approval or denial of an application by
the Director of the Pension Rehabilitation Administration shall
be treated as a final agency action for purposes of section 704
of title 5, United States Code. The Pension Rehabilitation
Administration shall make the loan pursuant to any application
promptly after the approval of such application.
(4) Certain plans required to apply.--The plan sponsor of any
plan with respect to which a suspension of benefits has been
approved under section 432(e)(9) of the Internal Revenue Code
of 1986 and section 305(e)(9) of the Employee Retirement Income
Security Act of 1974 or under section 418E of such Code, before
the date of the enactment of this Act shall apply for a loan
under this section. The Director of the Pension Rehabilitation
Administration shall provide for such plan sponsors to use the
simplified application under subsection (d)(2)(B).
(5) Incentive for early repayment.--The plan sponsor may
elect at the time of the application to repay the loan
principal, along with the remaining interest, over the 10-year
period beginning with the 21st year after the date of the loan.
In the case of a plan making this election, the interest on the
loan shall be reduced by 0.5 percent.
(d) Loan Amount and Use.--
(1) Amount of loan.--
(A) In general.--Except as provided in subparagraphs
(B) and (C) and paragraph (2), the amount of any loan
under subsection (a) shall be, as demonstrated by the
plan sponsor on the application under subsection (c),
the amount needed to purchase annuity contracts or to
implement a portfolio described in paragraph (3)(C) (or
a combination of the two) sufficient to provide
benefits of participants and beneficiaries of the plan
in pay status, and terminated vested benefits, at the
time the loan is made.
(B) Limitation based on ability to repay.--If at the
time of the application under subsection (c) the plan
sponsor determines that, based on a repayment schedule
that would provide for repayment of the full amount
determined under subparagraph (A) or (C)(ii) within the
30 year period described in subsection (b)(1), making
payments would cause the plan to be within 18 months of
becoming insolvent at any point during such period, the
loan amount shall be such lesser amount as the plan
sponsor determines the plan will be able to repay
without becoming within 18 months of insolvency.
(C) Plans with suspended benefits.--In the case of a
plan with respect to which a suspended benefits has
been approved under section 432(e)(9) of the Internal
Revenue Code of 1986 and section 305(e)(9) of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1085(e)(9)) or under section 418E of such Code--
(i) the suspension of benefits shall not be
taken into account in applying subparagraph
(A); and
(ii) except as provided in subparagraph (B),
the loan amount shall be the amount sufficient
to provide benefits of participants and
beneficiaries of the plan in pay status and
terminated vested benefits at the time the loan
is made, determined without regard to the
suspension, including retroactive payment of
benefits which would otherwise have been
payable during the period of the suspension.
(2) Coordination with pbgc financial assistance.--
(A) In general.--In the case of a plan which is also
applying for financial assistance under section 4261(d)
of the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1431(d))--
(i) the plan sponsor shall submit the loan
application and the application for financial
assistance jointly to the Pension
Rehabilitation Administration and the Pension
Benefit Guaranty Corporation with the
information necessary to determine the
eligibility for and amount of the loan under
this section and the financial assistance under
section 4261(d) of such Act; and
(ii) if such financial assistance is granted,
the amount of the loan under subsection (a)
shall not exceed an amount equal to the excess
of--
(I) the amount determined under
paragraph (1)(A) or (1)(C)(ii)
(whichever is applicable), without
regard to paragraph (1)(B); over
(II) the amount of such financial
assistance.
(B) Plans already receiving pbgc assistance.--The
Director of the Pension Rehabilitation Administration
shall provide for a simplified application for the loan
under this section which may be used by an insolvent
plan which has not been terminated and which is already
receiving financial assistance (other than under
section 4261(d) of such Act) from the Pension Benefit
Guaranty Corporation at the time of the application for
the loan under this section.
(3) Use of loan funds.--
(A) In general.--The loan received under subsection
(a) shall be used to purchase annuity contracts which
meet the requirements of subparagraph (B) or to
implement a portfolio described in subparagraph (C) (or
a combination of the two) to provide the benefits
described in paragraph (1).
(B) Annuity contract requirements.--The annuity
contracts purchased under subparagraph (A) shall be
issued by an insurance company which is licensed to do
business under the laws of any State and which is rated
A or better by a nationally recognized statistical
rating organization, and the purchase of such contracts
shall meet all applicable fiduciary standards under the
Employee Retirement Income Security Act of 1974.
(C) Portfolio.--
(i) In general.--A portfolio described in
this subparagraph is--
(I) a cash matching portfolio or
duration matching portfolio consisting
of investment grade (as rated by a
nationally recognized statistical
rating organization) fixed income
investments, including United States
dollar-denominated public or private
debt obligations issued or guaranteed
by the United States or a foreign
issuer, which are tradeable in United
States currency and are issued at fixed
or zero coupon rates; or
(II) any other portfolio prescribed
by the Secretary of the Treasury in
regulations which has a similar risk
profile to the portfolios described in
subclause (I) and is equally protective
of the interests of participants and
beneficiaries.
Once implemented, such a portfolio shall be
maintained until all liabilities to
participants and beneficiaries in pay status at
the time of the loan are satisfied.
(ii) Fiduciary duty.--Any investment manager
of a portfolio under this subparagraph shall
acknowledge in writing that such person is a
fiduciary under the Employee Retirement Income
Security Act of 1974 with respect to the plan.
(iii) Treatment of participants and
beneficiaries.--Participants and beneficiaries
covered by a portfolio under this subparagraph
shall continue to be treated as participants
and beneficiaries of the plan, including for
purposes of title IV of the Employee Retirement
Income Security Act of 1974.
(D) Accounting.--
(i) In general.--Annuity contracts purchased
and portfolios implemented under this paragraph
shall be used solely to provide the benefits
described in paragraph (1) until all such
benefits have been paid and shall be accounted
for separately from the other assets of the
plan.
(ii) Oversight of non-annuity investments.--
(I) In general.--Any portfolio
implemented under this paragraph shall
be subject to oversight by the Pension
Rehabilitation Administration,
including a mandatory triennial review
of the adequacy of the portfolio to
provide the benefits described in
paragraph (1) and approval (to be
provided within a reasonable period of
time) of any decision by the plan
sponsor to change the investment
manager of the portfolio.
(II) Remedial action.--If the
triennial review under subclause (I)
determines an inadequacy, the plan
sponsor shall take remedial action to
ensure that the inadequacy will be
cured within 5 years of the review.
(E) Ombudsperson.--The Participant and Plan Sponsor
Advocate established under section 4004 of the Employee
Retirement Income Security Act of 1974 shall act as
ombudsperson for participants and beneficiaries on
behalf of whom annuity contracts are purchased or who
are covered by a portfolio under this paragraph.
(e) Collection of Repayment.--Except as provided in subsection (f),
the Pension Rehabilitation Administration shall make every effort to
collect repayment of loans under this section in accordance with
section 3711 of title 31, United States Code.
(f) Loan Default.--If a plan is unable to make any payment on a loan
under this section when due, the Pension Rehabilitation Administration
shall negotiate with the plan sponsor revised terms for repayment
(including installment payments over a reasonable period or forgiveness
of a portion of the loan principal), but only to the extent necessary
to avoid insolvency in the subsequent 18 months.
(g) Authority to Issue Rules, etc.--The Director of the Pension
Rehabilitation Administration, in consultation with the Pension Benefit
Guaranty Corporation and the Department of Labor, is authorized to
issue rules regarding the form, content, and process of applications
for loans under this section, actuarial standards and assumptions to be
used in making estimates and projections for purposes of such
applications, and assumptions regarding interest rates, mortality, and
distributions with respect to a portfolio described in subsection
(d)(3)(C).
(h) Coordination With Taxation of Unrelated Business Income.--
Subparagraph (A) of section 514(c)(6) of the Internal Revenue Code of
1986 is amended--
(1) by striking ``or'' at the end of clause (i);
(2) by striking the period at the end of clause (ii)(II) and
inserting ``, or''; and
(3) by adding at the end the following new clause:
``(iii) indebtedness with respect to a
multiemployer plan under a loan made by the
Pension Rehabilitation Administration pursuant
to section 4 of the Rehabilitation for
Multiemployer Pensions Act of 2019.''.
SEC. 5. COORDINATION WITH WITHDRAWAL LIABILITY AND FUNDING RULES.
(a) Amendment to Internal Revenue Code of 1986.--Section 432 of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new subsection:
``(k) Special Rules for Plans Receiving Pension Rehabilitation
Loans.--
``(1) Determination of withdrawal liability.--
``(A) In general.--If any employer participating in a
plan at the time the plan receives a loan under section
4(a) of the Rehabilitation for Multiemployer Pensions
Act of 2019 withdraws from the plan before the end of
the 30-year period beginning on the date of the loan,
the withdrawal liability of such employer shall be
determined under the Employee Retirement Income
Security Act of 1974--
``(i) by applying section 4219(c)(1)(D) of
the Employee Retirement Income Security Act of
1974 as if the plan were terminating by the
withdrawal of every employer from the plan, and
``(ii) by determining the value of
nonforfeitable benefits under the plan at the
time of the deemed termination by using the
interest assumptions prescribed for purposes of
section 4044 of the Employee Retirement Income
Security Act of 1974, as prescribed in the
regulations under section 4281 of the Employee
Retirement Income Security Act of 1974 in the
case of such a mass withdrawal.
``(B) Annuity contracts and investment portfolios
purchased with loan funds.--Annuity contracts purchased
and portfolios implemented under section 4(d)(3) of the
Rehabilitation for Multiemployer Pensions Act of 2019
shall not be taken into account in determining the
withdrawal liability of any employer under subparagraph
(A), but the amount equal to the greater of--
``(i) the benefits provided under such
contracts or portfolios to participants and
beneficiaries, or
``(ii) the remaining payments due on the loan
under section 4(a) of such Act,
shall be so taken into account.
``(2) Coordination with funding requirements.--In the case of
a plan which receives a loan under section 4(a) of the
Rehabilitation for Multiemployer Pensions Act of 2019--
``(A) annuity contracts purchased and portfolios
implemented under section 4(d)(3) of such Act, and the
benefits provided to participants and beneficiaries
under such contracts or portfolios, shall not be taken
into account in determining minimum required
contributions under section 412,
``(B) payments on the interest and principal under
the loan, and any benefits owed in excess of those
provided under such contracts or portfolios, shall be
taken into account as liabilities for purposes of such
section, and
``(C) if such a portfolio is projected due to
unfavorable investment or actuarial experience to be
unable to fully satisfy the liabilities which it
covers, the amount of the liabilities projected to be
unsatisfied shall be taken into account as liabilities
for purposes of such section.''.
(b) Amendment to Employee Retirement Income Security Act of 1974.--
Section 305 of the Employee Retirement Income Security Act of 1974 (29
U.S.C. 1085) is amended by adding at the end the following new
subsection:
``(k) Special Rules for Plans Receiving Pension Rehabilitation
Loans.--
``(1) Determination of withdrawal liability.--
``(A) In general.--If any employer participating in a
plan at the time the plan receives a loan under section
4(a) of the Rehabilitation for Multiemployer Pensions
Act of 2019 withdraws from the plan before the end of
the 30-year period beginning on the date of the loan,
the withdrawal liability of such employer shall be
determined--
``(i) by applying section 4219(c)(1)(D) as if
the plan were terminating by the withdrawal of
every employer from the plan, and
``(ii) by determining the value of
nonforfeitable benefits under the plan at the
time of the deemed termination by using the
interest assumptions prescribed for purposes of
section 4044, as prescribed in the regulations
under section 4281 in the case of such a mass
withdrawal.
``(B) Annuity contracts and investment portfolios
purchased with loan funds.--Annuity contracts purchased
and portfolios implemented under section 4(d)(3) of the
Rehabilitation for Multiemployer Pensions Act of 2019
shall not be taken into account in determining the
withdrawal liability of any employer under subparagraph
(A), but the amount equal to the greater of--
``(i) the benefits provided under such
contracts or portfolios to participants and
beneficiaries, or
``(ii) the remaining payments due on the loan
under section 4(a) of such Act,
shall be so taken into account.
``(2) Coordination with funding requirements.--In the case of
a plan which receives a loan under section 4(a) of the
Rehabilitation for Multiemployer Pensions Act of 2019--
``(A) annuity contracts purchased and portfolios
implemented under section 4(d)(3) of such Act, and the
benefits provided to participants and beneficiaries
under such contracts or portfolios, shall not be taken
into account in determining minimum required
contributions under section 302,
``(B) payments on the interest and principal under
the loan, and any benefits owed in excess of those
provided under such contracts or portfolios, shall be
taken into account as liabilities for purposes of such
section, and
``(C) if such a portfolio is projected due to
unfavorable investment or actuarial experience to be
unable to fully satisfy the liabilities which it
covers, the amount of the liabilities projected to be
unsatisfied shall be taken into account as liabilities
for purposes of such section.''.
SEC. 6. ISSUANCE OF TREASURY BONDS.
The Secretary of the Treasury (in consultation with the Director of
the Pension Rehabilitation Administration established under section 2)
shall from time to time transfer from the general fund of the Treasury
to the Pension Rehabilitation Trust Fund established under section 9512
of the Internal Revenue Code of 1986 such amounts as are necessary to
fund the loan program under section 4 of this Act, including from
proceeds from the Secretary's issuance of obligations under chapter 31
of title 31, United States Code.
SEC. 7. REPORTS OF PLANS RECEIVING PENSION REHABILITATION LOANS.
(a) In General.--Subpart E of part III of subchapter A of chapter 61
of the Internal Revenue Code of 1986 is amended by adding at the end
the following new section:
``SEC. 6059A. REPORTS OF PLANS RECEIVING PENSION REHABILITATION LOANS.
``(a) In General.--In the case of a plan receiving a loan under
section 4(a) of the Rehabilitation for Multiemployer Pensions Act of
2019, with respect to the first plan year beginning after the date of
the loan and each of the 29 succeeding plan years, not later than the
90th day of each such plan year the plan sponsor shall file with the
Secretary a report (including appropriate documentation and actuarial
certifications from the plan actuary, as required by the Secretary)
that contains--
``(1) the funded percentage (as defined in section 432(i)(2))
as of the first day of such plan year, and the underlying
actuarial value of assets (determined with regard, and without
regard, to annuity contracts purchased and portfolios
implemented with proceeds of such loan) and liabilities
(including any amounts due with respect to such loan) taken
into account in determining such percentage,
``(2) the market value of the assets of the plan (determined
as provided in paragraph (1)) as of the last day of the plan
year preceding such plan year,
``(3) the total value of all contributions made by employers
and employees during the plan year preceding such plan year,
``(4) the total value of all benefits paid during the plan
year preceding such plan year,
``(5) cash flow projections for such plan year and the 9
succeeding plan years, and the assumptions used in making such
projections,
``(6) funding standard account projections for such plan year
and the 9 succeeding plan years, and the assumptions relied
upon in making such projections,
``(7) the total value of all investment gains or losses
during the plan year preceding such plan year,
``(8) any significant reduction in the number of active
participants during the plan year preceding such plan year, and
the reason for such reduction,
``(9) a list of employers that withdrew from the plan in the
plan year preceding such plan year, and the resulting reduction
in contributions,
``(10) a list of employers that paid withdrawal liability to
the plan during the plan year preceding such plan year and, for
each employer, a total assessment of the withdrawal liability
paid, the annual payment amount, and the number of years
remaining in the payment schedule with respect to such
withdrawal liability,
``(11) any material changes to benefits, accrual rates, or
contribution rates during the plan year preceding such plan
year, and whether such changes relate to the terms of the loan,
``(12) details regarding any funding improvement plan or
rehabilitation plan and updates to such plan,
``(13) the number of participants and beneficiaries during
the plan year preceding such plan year who are active
participants, the number of participants and beneficiaries in
pay status, and the number of terminated vested participants
and beneficiaries,
``(14) the amount of any financial assistance received under
section 4261 of the Employee Retirement Income Security Act of
1974 to pay benefits during the preceding plan year, and the
total amount of such financial assistance received for all
preceding years,
``(15) the information contained on the most recent annual
funding notice submitted by the plan under section 101(f) of
the Employee Retirement Income Security Act of 1974,
``(16) the information contained on the most recent annual
return under section 6058 and actuarial report under section
6059 of the plan, and
``(17) copies of the plan document and amendments, other
retirement benefit or ancillary benefit plans relating to the
plan and contribution obligations under such plans, a breakdown
of administrative expenses of the plan, participant census data
and distribution of benefits, the most recent actuarial
valuation report as of the plan year, copies of collective
bargaining agreements, and financial reports, and such other
information as the Secretary, in consultation with the Director
of the Pension Rehabilitation Administration, may require.
``(b) Electronic Submission.--The report required under subsection
(a) shall be submitted electronically.
``(c) Information Sharing.--The Secretary shall share the information
in the report under subsection (a) with the Secretary of Labor and the
Director of the Pension Benefit Guaranty Corporation.
``(d) Report to Participants, Beneficiaries, and Employers.--Each
plan sponsor required to file a report under subsection (a) shall,
before the expiration of the time prescribed for the filing of such
report, also provide a summary (written in a manner so as to be
understood by the average plan participant) of the information in such
report to participants and beneficiaries in the plan and to each
employer with an obligation to contribute to the plan.''.
(b) Penalty.--Subsection (e) of section 6652 of the Internal Revenue
Code of 1986 is amended--
(1) by inserting ``, 6059A (relating to reports of plans
receiving pension rehabilitation loans)'' after ``deferred
compensation)'';
(2) by inserting ``($100 in the case of failures under
section 6059A)'' after ``$25''; and
(3) by adding at the end the following: ``In the case of a
failure with respect to section 6059A, the amount imposed under
this subsection shall not be paid from the assets of the
plan.''.
(c) Clerical Amendment.--The table of sections for subpart E of part
III of subchapter A of chapter 61 of the Internal Revenue Code of 1986
is amended by adding at the end the following new item:
``Sec. 6059A. Reports of plans receiving pension rehabilitation
loans.''.
SEC. 8. PBGC FINANCIAL ASSISTANCE.
(a) In General.--Section 4261 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1431) is amended by adding at the end
the following new subsection:
``(d)(1) The plan sponsor of a multiemployer plan--
``(A) which is in critical and declining status (within the
meaning of section 305(b)(6)) as of the date of the enactment
of this subsection, or with respect to which a suspension of
benefits has been approved under section 305(e)(9) as of such
date;
``(B) which, as of such date of enactment, is in critical
status (within the meaning of section 305(b)(2)), has a funded
percentage of less than 40 percent (as determined for purposes
of section 305), and has a ratio of active to inactive
participants which is less than 2 to 3; or
``(C) which is insolvent for purposes of section 418E of the
Internal Revenue Code of 1986 as of such date of enactment, if
the plan became insolvent after December 16, 2014, and has not
been terminated;
and which is applying for a loan under section 4(a) of the
Rehabilitation for Multiemployer Pensions Act of 2019 may also apply to
the corporation for financial assistance under this subsection, by
jointly submitting such applications in accordance with section 4(d)(2)
of such Act. The application for financial assistance under this
subsection shall demonstrate, based on projections by the plan actuary,
that after the receipt of the anticipated loan amount under section
4(a) of such Act, the plan will still become (or remain) insolvent
within the 30-year period beginning on the date of the loan.
``(2) In reviewing an application under paragraph (1), the
corporation shall review the demonstrations and assumptions submitted
with the loan application under section 4(c) of the Rehabilitation for
Multiemployer Pensions Act of 2019 and provide guidance regarding such
assumptions prior to approving any application for financial assistance
under this subsection. The corporation may deny any application if the
assumptions and determinations are unreasonable, or inconsistent with
rules issued by the corporation, and the plan and the corporation are
unable to reach agreement on such assumptions and determinations.
``(3) In the case of a plan described in paragraph (1)(A) or (1)(B),
the financial assistance provided pursuant to such application under
this subsection shall be the amount (determined by the plan actuary and
submitted on the application) equal to the sum of--
``(A) the percentage of benefits of participants and
beneficiaries of the plan in pay status at the time of the
application, and
``(B) the percentage of future benefits to which participants
who have separated from service but are not yet in pay status
are entitled,
which, if such percentage were paid by the corporation in combination
with the loan, would allow the plan to avoid projected insolvency. Such
amount shall not exceed the maximum guaranteed benefit with respect to
all participants and beneficiaries of the plan under sections 4022A and
4022B. For this purpose, the maximum guaranteed benefit amount shall be
determined by disregarding any loan available from the Pension
Rehabilitation Administration and shall be determined as if the plan
were insolvent on the date of the application. Further, the present
value of the maximum guaranteed benefit amount with respect to such
participants and beneficiaries may be calculated in the aggregate,
rather than by reference to the benefit of each such participant or
beneficiary.
``(4) In the case of a plan described in paragraph (1)(C), the
financial assistance provided pursuant to such application under this
subsection shall be the amount (determined by the plan actuary and
submitted on the application) which, if such amount were paid by the
corporation in combination with the loan and any other assistance being
provided to the plan by the corporation at the time of the application,
would enable the plan to emerge from the projected insolvency.
``(5)(A) Except as provided in subparagraph (B), the corporation
shall provide the financial assistance under this subsection only in
such amounts as the corporation determines, at the time of approval and
at the beginning of each plan year beginning thereafter during the
period of assistance, are necessary for the plan to avoid insolvency
during the 5 plan year period beginning with the current plan year.
``(B) In the case of a plan described in paragraph (1)(C), the
financial assistance under this subsection shall be provided in a lump
sum if deemed necessary by the corporation, and in no case later than
December 31, 2020.
``(6) Subsections (b) and (c) shall apply to financial assistance
under this subsection as if it were provided under subsection (a),
except that the terms for repayment under subsection (b)(2) shall not
require the financial assistance to be repaid before the date on which
the loan under section 4(a) of the Rehabilitation for Multiemployer
Pensions Act of 2019 is repaid in full.
``(7) The corporation may forgo repayment of the financial assistance
provided under this subsection if necessary to avoid any suspension of
the accrued benefits of participants.''.
(b) Appropriations.--There is appropriated to the Director of the
Pension Benefit Guaranty Corporation such sums as may be necessary for
each fiscal year to provide the financial assistance described in
section 4261(d) of the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1431(d)) (as added by this section) (including necessary
administrative and operating expenses relating to such assistance).
Purpose and Summary
The purpose of H.R. 397, the Rehabilitation for
Multiemployer Pensions Act, is to address the immediate
multiemployer pension crisis and fully protect retirees'
pensions.
A multiemployer pension plan is a collectively bargained
plan involving multiple employers--often within the same or
related industries--and a labor union. Multiemployer pension
plans are managed by a board of trustees consisting of an equal
number of members appointed by the union and the employers.
Multiemployer pension plans are found in industries such as
construction, trucking, roofing, food service, industrial
baking, manufacturing, sheet metal working, and coal mining,
among others. There are approximately 1,400 multiemployer
pension plans in the United States covering over 10 million
participants and including approximately 200,000 contributing
employers.
Due to several factors, including deregulation, decline in
union density, financial crises, mature plans with a large
ratio of retirees to active workers, and lack of new employers
with active workers making contributions, approximately 130
multiemployer pension plans are in severe financial distress.
These plans cover over 1 million participants. A few large and
financially distressed plans, such as the United Mine Workers
of America (UMWA) Pension Plan of 1974 and the Teamsters
Central States Pension Fund (Central States), are projected to
be insolvent in the next few years. Other plans are projected
to run out of money over the next 20 years.
Making matters worse, the Pension Benefit Guaranty
Corporation's (PBGC) multiemployer program, which insures these
pension plans, is on the brink of collapse. In fact, according
to the PBGC's 2018 Annual Report, its multiemployer program has
approximately $2.3 billion in assets to meet $56 billion in
liabilities.\1\ The PBGC estimates that its multiemployer
program's ``risk of insolvency rises rapidly and is likely to
occur by the end of the Fiscal Year 2025.''\2\
---------------------------------------------------------------------------
\1\PBGC, Annual Report (2018), https://www.pbgc.gov/sites/default/
files/pbgc-annual-report-2018.pdf.
\2\Id.
---------------------------------------------------------------------------
If multiemployer pension plans go insolvent and the PBGC's
multiemployer program collapses, there will be catastrophic
consequences for retirees, workers, and businesses. There also
will be enormous costs to taxpayers, as the federal government
will lose tax revenue from lost pension income and face
increased spending on social safety net programs.
Congress passed legislation entitled the Multiemployer
Pension Reform Act of 2014 (MPRA) (Division O of Pub. L. 113-
235) with the intent to address the crisis. However, it is now
clear that MPRA--and other existing laws--will not save the
plans most in need of help nor prevent the collapse of the
PBGC's multiemployer program. It is necessary for Congress to
act again and soon. H.R. 397 is the only bipartisan legislative
solution introduced in Congress that addresses the immediate
multiemployer pension crisis without requiring cuts to
retirees' pensions.
Committee Action
115TH CONGRESS
On November 16, 2017, Congressman Richard Neal (D-MA-1)
introduced H.R. 4444, the Rehabilitation for Multiemployer
Pensions Act. H.R. 4444 was referred to the House Committees on
Education and the Workforce, Ways and Means, and
Appropriations. No further action was taken on the bill.
On November 29, 2017, the Health, Employment, Labor, and
Pensions (HELP) Subcommittee of the House Education and
Workforce Committee held a hearing entitled ``Financial
Challenges Facing the Pension Benefit Guaranty Corporation:
Implications for Pension Plans, Workers, and Retirees.'' The
Honorable W. Thomas Reeder, Director, Pension Benefit Guaranty
Corporation, was the only witness. During the hearing, Director
Reeder testified in support of the Administration's budget
proposal to prevent the insolvency of the PBGC's multiemployer
program. However, Director Reeder acknowledged that such budget
proposal was ``not the answer for making good on the promise''
that Central States and other plans have made to its
participants.\3\
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\3\Financial Challenges Facing the Pension Benefit Guaranty
Corporation: Implications for Pension Plans, Workers, and Retirees
Before the Subcomm. on Health, Employment, Labor, and Pensions of the
H. Comm. on Educ. and Workforce, 115th Cong. (2017) (statement of the
Honorable W. Thomas Reeder, Director, Pension Benefit Guaranty
Corporation).
---------------------------------------------------------------------------
On February 9, 2018, Congress passed, and President Trump
signed into law, the Bipartisan Budget Act of 2018 (BBA)
(Public Law 115-123). It established the Joint Select Committee
on the Solvency of Multiemployer Pension Plans (JSC). The JSC
was comprised of eight members of the House and eight members
of the Senate with equal representation from Democrats and
Republicans. From the House Committee on Education and the
Workforce, Representatives Robert C. ``Bobby'' Scott (D-VA-3),
Virginia Foxx (R-NC-5), Donald Norcross (D-NJ-1), and Phil Roe
(R-TN-1) were appointed to serve on the JSC. The JSC was
charged with providing ``recommendations and legislative
language that will significantly improve the solvency of
multiemployer pension plans and the Pension Benefit Guaranty
Corporation.''\4\
---------------------------------------------------------------------------
\4\Bipartisan Budget Act of 2018, Pub. L. No. 115-123, Sec. 30422,
132 Stat. 64 (2018), https://www.congress.gov/115/plaws/publ123/PLAW-
115publ123.pdf.
---------------------------------------------------------------------------
The JSC conducted five hearings during 2018.
On April 18, 2018, the JSC convened its
first public hearing entitled ``The History and
Structure of the Multiemployer Pension System.'' The
witnesses were: Mr. Thomas A. Barthold, Chief of Staff,
Joint Committee on Taxation, Washington, DC; and Mr.
Ted Goldman, Senior Pension Fellow, American Academy of
Actuaries, Washington, DC. The hearing provided JSC
Members with an overview of the multiemployer pension
system and the crisis confronting it.
On May 17, 2018, the JSC convened its second
public hearing entitled ``The Structure and Financial
Outlook of the Pension Benefit Guaranty Corporation.''
The witness was: The Honorable W. Thomas Reeder,
Director, Pension Benefit Guaranty Corporation,
Washington, DC. The hearing provided JSC Members with
an understanding of the PBGC and its financial outlook.
On June 13, 2018, the JSC convened its third
public hearing entitled ``Employer Perspectives on
Multiemployer Pension Plans.'' The witnesses were: Mr.
Chris Langan, Vice President, UPS, Atlanta, GA; Ms.
Aliya Wong, Executive Director of Retirement Policy,
U.S. Chamber of Commerce, Washington, DC; Ms. Mary
Moorcamp, Chief Legal and External Affairs Officer,
Schnuck Markets, St. Louis, MO; and Mr. Burke Blackman,
President, Egger Steel Company, Sioux Falls, SD. The
hearing provided JSC Members insight into how
businesses of all sizes have been placed at risk by the
multiemployer pension crisis.
On July 13, 2018, the JSC convened its
fourth public hearing entitled ``Understanding What's
at Stake for Current Workers and Retirees.'' The
hearing took place in Columbus, Ohio. The witnesses
were: Mr. Bill Martin, President, Spangler Candy
Company, Bryan, OH; Ms. Roberta Dell, Chief Union
Steward, Spangler Candy Company, Bryan, OH; Mr. David
Gardner, Chief Executive Officer, Alfred Nickles
Bakery, Inc., Navarre, OH; Mr. Larry Ward, Retired Coal
Miner and Former President of the United Mine Workers
of America, District 6, Hopedale, OH; Mr. Brian Slone,
Apprentice Instructor, Millwright Local 1090, Dayton,
OH; and Mr. Mike Walden, President, National United
Committee to Protect Pensions, Cuyahoga Falls, OH. The
hearing provided Ohio-based workers, employers, and
retirees the opportunity to discuss how the
multiemployer pension crisis impacts them.
On July 25, 2018, the JSC convened its fifth
public hearing entitled ``How the Multiemployer Pension
System Affects Stakeholders.'' The witnesses were: Mr.
James Naughton, Assistant Professor and Donald P.
Jacobs Scholar, Kellogg School of Management,
Northwestern University, Evanston, IL; Mr. Joshua Rauh,
Director of Research and Senior Fellow, Hoover
Institution, Stanford University, Stanford, CA; Mr.
Kenneth Stribling, Retired Teamster, Milwaukee, WI; and
Mr. Timothy Lynch, Senior Director Government Relations
Practice, Morgan, Lewis, and Bockius LLP, Annapolis,
MD. The hearing provided stakeholders the opportunity
to discuss challenges with the multiemployer pension
system and suggest policy options to address the crisis
for the JSC's consideration.
The JSC was unable to reach a bipartisan agreement before
its statutory authorization terminated on December 31, 2018.
116TH CONGRESS
On January 9, 2019, Congressman Richard Neal (D-MA-1)
introduced H.R. 397, the Rehabilitation for Multiemployer
Pensions Act. H.R. 397 establishes a Pension Rehabilitation
Administration (PRA) within the U.S. Department of the Treasury
(Treasury). The PRA finances loans for eligible failing
multiemployer pension plans, plans that have suspended
benefits, and some insolvent plans currently receiving
financial assistance from the PBGC. Those pension plans that
cannot remain solvent or become solvent with only a loan can
apply to the PBGC for additional financial assistance in
conjunction with a PRA loan. H.R. 397 was referred to the House
Committees on Education and Labor, Ways and Means, and
Appropriations.
On March 7, 2019, the House Committee on Education and
Labor held a legislative hearing entitled ``The Cost of
Inaction: Why Congress Must Address the Multiemployer Pension
Crisis'' (March 7th Hearing). The witnesses were: Mr. Josh
Shapiro, Vice President, Pensions, American Academy of
Actuaries, Washington, DC; Ms. Mary Moorcamp, Chief Legal and
External Affairs Officer, Schnuck Markets, St. Louis, MO; Mr.
James Morgan, Bakery Pension Fund Retiree, Blue Island, IL; Mr.
James Naughton, Assistant Professor and Donald P. Jacobs
Scholar, Kellogg School of Management, Northwestern University,
Evanston, IL; Mr. Glenn Spencer, Senior Vice President,
Employment Policy Division, U.S. Chamber of Commerce,
Washington, DC; Mr. Charles Blahous, J. Fish and Lillian F.
Smith Chair and Senior Research Strategist, Mercatus Center at
George Mason University, Arlington, VA; and Ms. Mariah Becker,
Director of Research and Education, National Coordinating
Committee for Multiemployer Plans, Washington, DC. During the
hearing, Members and witnesses discussed H.R. 397 and explored
the costs and consequences to retirees, active workers,
participating employers, and the federal government if Congress
does not resolve the multiemployer pension crisis.
On June 11, 2019, the House Committee on Education and
Labor met for a full committee markup of H.R. 397. The
Committee adopted an amendment in the nature of a substitute
(ANS) offered by Congressman Robert C. ``Bobby'' Scott (D-VA-
3), Chairman, and reported the bill favorably, as amended, to
the House of Representatives by a vote of 26-18. The ANS
incorporated the core provisions of H.R. 397, with several
modifications, including the following:
It clarifies that the loan program's
eligibility is intended for those plans that are in the
most urgent need of help. The ANS limits the loan
program to those plans that, as of the date of
enactment, are in critical and declining status and any
critical status plan that is below 40% funded with an
active to inactive ratio of below 40 percent (i.e.,
less than 2 active employees for every 3 retirees).
Those plans that went through the MPRA process to cut
retirees' benefits and some currently insolvent plans
also remain eligible for the loan program.
It updates the dates by which the loan
program must be established and by which the guidance
regarding the loan program must be promulgated.
It includes an alternative, accelerated
repayment schedule for loans. During the loan
application process, a plan may elect to pay interest-
only on the loan for the first 20 years and then repay
the principal in 10 equal installments between year 20
and year 30. For those plans that elect the alternative
repayment schedule, the loan interest rate is reduced
by 50 basis points. If plans do not elect this option,
the payment schedule remains interest-only for 29 years
with the final interest and principal repayment due in
year 30.
It provides additional detail on the
interest rates for loans, setting a floor and a
ceiling. Specifically, the ANS says the rate shall not
be lower than the interest rate on 30-year U.S.
Treasury securities on the first day of the calendar
year in which the loan was issued. For 2019, it would
be 2.97%. But the rate shall not be higher than the 30-
year interest rate plus 20 basis points or the amount
that is sufficient to administer the program (whichever
is greater).
It amends the standard by which the loan
application can be rejected. In the introduced version
of H.R. 397, the Director of the PRA had to conclude
the application's determinations and demonstrations
were ``clearly erroneous.'' In the ANS, the Director of
the PRA must conclude that the application's
determinations and demonstrations are ``unreasonable''
or ``inconsistent'' with any rules issued to implement
the program.
It includes a new determination in the loan
application process related to a plan's ability to
repay its loan. Specifically, if at the time of the
application, a plan determines that making full
payments on a 30-year repayment schedule would cause
the plan to be at risk of becoming insolvent within any
18-month period, then the loan amount shall be reduced
to an amount that the plan determines it can repay.
This determination is intended to assist with the
calculation of PBGC assistance. The ANS also makes
clear that any PBGC assistance is calculated at the
time of the PRA loan application.
It includes language specifying that the PRA
shall make every effort to collect repayment of loans.
It specifies that the PBGC assistance is
provided to the plans when cash flow needs require it
(within 5 years of insolvency).
A diverse coalition supports H.R. 397, including: AARP,
AFL-CIO, Bakery and Confectionary Union and Industry
International Pension Fund, BlackRock, BNY Mellon,
International Association of Machinists and Aerospace Workers
(IAM), International Brotherhood of Boilermakers, International
Brotherhood of Electrical Workers (IBEW), International
Brotherhood of Teamsters (IBT), John Hancock, National Retirees
Legislative Network (NLRN), Pension Rights Center, PNC
Financial Services Group, United Food and Commercial Workers
(UFCW), United Steelworkers (USW), and Western Conference of
Teamsters Pension Trust.
Committee Views
The House Committee on Education and Labor is committed to
protecting retirees' multiemployer pensions and preventing the
collapse of the multiemployer pension system and the PBGC's
multiemployer program. Unless Congress acts, that collapse will
inevitably occur and trigger a catastrophe for retirees, active
workers, employers, and taxpayers.
MULTIEMPLOYER PENSION CRISIS: HARM TO RETIREES
Through no fault of their own, retirees are at risk of
losing nearly everything for which they worked and sacrificed
over their careers. One non-partisan witness testified at the
March 7th Hearing that--if Congress doesn't act--pension cuts
could be 90 percent or more.\5\ During one of the JSC's
hearings in 2018, one witness, Larry Ward, a retired
mineworker, said that his pension was below the UMWA's average
of $582 per month.\6\ Mr. Ward estimated that, if the UMWA's
plan fails and the PBGC goes insolvent, then the average UMWA
pensioner ``would see a cut of about 90%'' that would
``devastate'' him and other mineworkers.\7\
---------------------------------------------------------------------------
\5\The Cost of Inaction: Why Congress Must Address the
Multiemployer Pension Crisis Before the Subcomm. on Health, Employment,
Labor, and Pensions of the H. Comm. on Educ. and Labor, 116th Cong.
(2019) (written testimony of Josh Shapiro at 3).
\6\Understanding What's at Stake for Current Workers and Retirees
Before the Joint Select Committee on the Solvency of Multiemployer
Pension Plans, 115th Cong. (2018) (written testimony of Larry Ward at
1).
\7\Id. at 3.
---------------------------------------------------------------------------
MULTIEMPLOYER PENSION CRISIS: LOSS OF JOBS
It is not only retirees who would suffer if large and
financially distressed plans fail. Those currently employed--
the active workers--would be harmed as well. A conservative
economist conducted a macroeconomic analysis of what would
happen if Central State collapsed in 2025 (as is currently
projected). The analysis found that there would be a loss of
more than 55,000 jobs across the United States in one year.\8\
Michigan and Missouri ``would be hardest hit, each facing job
losses of more than 4,000.''\9\ Twelve other states would lose
more than 1,000 jobs: Florida, Georgia, Illinois, Indiana,
Iowa, Kentucky, Minnesota, North Carolina, Tennessee, Texas,
Virginia, and Wisconsin.\10\ This study projects that state and
local tax revenue would decline by approximately $450 million
and federal revenue by $1.2 billion in the year the plan is
projected to become insolvent.\11\ The impact of Central
States' potential insolvency is likely to stretch beyond one
year. To that point, the analysis acknowledges that the case
study ``could represent a lower-bound of the aggregate
macroeconomic impact of the pending insolvency of Central
States.''\12\
---------------------------------------------------------------------------
\8\Alex Brill, The Crisis Facing Multiemployer Pension Plans 1
(2018), https://edlabor.house.gov/imo/media/doc/
The%20Crisis%20Facing%20Multiemployer%20Pension%20Plans%20August%202018[
3][1].pdf.
\9\Id. at 1.
\10\Id. at 1.
\11\Id. at 1.
\12\Id. at 7.
---------------------------------------------------------------------------
However, the negative impact to active workers is not
limited to potential unemployment. Many active workers in
failing plans are in unfair situations right now. For instance,
active workers in failing plans are accruing little or no
benefit for the contributions made by their employers. As the
U.S. Chamber of Commerce has noted, ``[t]here are some
employers paying $15.00 or more per hour to plans for every
hour an employee works . . . employees understand that they are
never going to receive a benefit that is commensurate with the
contribution rate the employer is paying.''\13\ Bill Martin of
Spangler Candy testified to this reality at one of the JSC
hearings, noting that ``our Teamster employees will only
receive a fraction of their promised retirement benefits
because the Central States Pension Plan is going to FAIL.''\14\
---------------------------------------------------------------------------
\13\United States Chamber of Commerce, The Multiemployer Pension
Plan Crisis: Business and Jobs at Risk 4 (2018), https://
www.uschamber.com/sites/default/files/
multiemployer_report_businesses_and_jobs_at_risk_final.pdf.
\14\Understanding What's at Stake for Current Workers and Retirees
Before the Joint Select Committee on the Solvency of Multiemployer
Pension Plans, 115th Cong. (2018) (written testimony of Bill Martin at
1).
---------------------------------------------------------------------------
MULTIEMPLOYER PENSION CRISIS: THREAT TO EMPLOYERS
In addition to the challenges with retaining employees,
employers face challenges to their continued viability due to
the multiemployer pension crisis. This is primarily due to
what's referred to as ``withdrawal liability.'' The
Multiemployer Pension Plan Amendments Act of 1980 (MPPA) was
intended to prevent employers from exiting a financially
troubled multiemployer plan without paying a proportional share
of the plan's underfunding.\15\ MPPA requires a withdrawal
liability assessment from employers and a schedule of payments.
---------------------------------------------------------------------------
\15\29 U.S.C. Sec. Sec. 1382 and 1391.
---------------------------------------------------------------------------
However, in the instances when an employer withdraws
because of bankruptcy, then it may not be possible to recover
an employer's withdrawal liability. Two of Central States'
major contributing employers exited the plan in 2001 and 2003
and left $290 million and $403 million, respectively, in
withdrawal liability unpaid after they went bankrupt.\16\ When
this happens, the responsibilities of the unfunded liabilities
shift to the remaining employers. This is referred to as the
``last-man standing'' rule. In practice, this means remaining
employers must make pension contributions for those employees
who may have never worked for them or may have worked for one
of their competitors or a company outside their region or
industry. At the March 7th Hearing, Ms. Moorcamp affirmed this
same point. Ms. Moorcamp testified that most of Schnuck
Markets' contribution dollars to Central States for their
Teamster employees pay the benefits of participants who never
worked for Schnuck Markets.\17\
---------------------------------------------------------------------------
\16\United States Government Accountability Office, Central States
Pension Fund 28 (2018), https://www.gao.gov/assets/700/692265.pdf.
\17\The Cost of Inaction: Why Congress Must Address the
Multiemployer Pension Crisis Before the Subcomm. on Health, Employment,
Labor, and Pensions of the H. Comm. on Educ. and Labor, 116th Cong.
(2019) (written testimony of Mary Moorcamp at 3).
---------------------------------------------------------------------------
The last man standing rule also has implications for the
remaining employers' estimated withdrawal liability, as they
are saddled with the unfunded pension liability resulting from
those employers who exited the plan. Schnuck Markets reported
that its share of Central States underfunding was estimated to
be over $200 million.\18\ To put this in context, Schnuck
Markets' entire Teamster payroll is $16.8 million.\19\
Similarly, the Spangler Candy Company, a family owned, Ohio-
based confectionary manufacturer that makes Dum Dum lollipops,
among other candies, has seen its estimated Central States
withdrawal liability skyrocket. According to Spangler, its
``withdrawal liability is in the tens of millions of dollars,
going up 12-15% per year, and it seems to have little
correlation to our active workers or retirees.''\20\
---------------------------------------------------------------------------
\18\Id. at 4.
\19\Id.
\20\Understanding What's at Stake for Current Workers and Retirees
Before the Joint Select Committee on the Solvency of Multiemployer
Pension Plans, 115th Cong. (2018) (written testimony of Bill Martin at
2).
---------------------------------------------------------------------------
While actual payment of withdrawal liability is not
``booked'' until an employer withdraws or a plan terminates,
the Financial Accounting Standards Board (FASB) requires
contributing employers to disclose certain information on their
financial statements about the multiemployer pension plan in
which they participate.\21\ As the U.S. Chamber of Commerce has
noted, ``[a]s the depth of the multiemployer pension crisis is
increasing, employers are finding that ordinary business
activities are being affected by the fear of the potential for
withdrawal liability. Even though the employers have not been
assessed a withdrawal liability, some banks and lenders are
questioning these employers' creditworthiness, leading to less
optimal lending rates or even denial of credit.''\22\ For
instance, during one of the JSC hearings, one witness reported
that, ``[t]hree years ago, our two banks called our loans.
Their reason was ``Your exorbitant unfunded pension liability
is too much of a liability and a risk for your business and for
us!'''\23\
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\21\Financial Accounting Standards Board, Compensation-Retirement
Benefits-Multiemployer Plans (2011), https://www.fasb.org/jsp/FASB/
Document_C/DocumentPage?cid=1176158943384&acceptedDisclaimer=true.
\22\United States Chamber of Commerce, The Multiemployer Pension
Plan Crisis: Business and Jobs at Risk 4 (2018), https://
www.uschamber.com/sites/default/files/
multiemployer_report_businesses_and_jobs_at_risk_final.pdf.
\23\Understanding What's at Stake for Current Workers and Retirees
Before the Joint Select Committee on the Solvency of Multiemployer
Pension Plans, 115th Cong. (2018) (written testimony of David Gardner
at 2).
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MULTIEMPLOYER PENSION CRISIS: COSTS TO TAXPAYERS
If certain plans become insolvent and the PBGC's
multiemployer program collapses, there would be enormous costs
to taxpayers. Retirees, whose pensions would be cut to
essentially zero, may be forced to turn to government
assistance programs to make ends meet. There also would be a
significant loss of tax revenue from lost pension income. In
fact, according to one expert, the total costs--in terms of
lost tax revenue and increased social safety net spending--is
estimated between $170 billion and $240 billion over the 10-
year budget window and between $332 billion and $479 billion
over 30 years.\24\
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\24\The Cost of Inaction: Why Congress Must Address the
Multiemployer Pension Crisis Before the H. Subcomm. on Health,
Employment, Labor, and Pensions of the H. Comm. on Educ. and Labor,
116th Cong. (2019) (written testimony of Mariah Becker at 12).
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Even Douglas Holtz-Eakin of the American Action Form (AAF),
a conservative public policy institute, has acknowledged that
taxpayers will be financially responsible if Congress does not
act to address the multiemployer pension crisis. In December
2018, Mr. Holtz-Eakin wrote, ``[i]t is not simply a choice of
committing federal funds or not. For Congress it is one of
those `pay me now or pay me later' moments and the goal should
be to minimize the necessary infusion.''\25\
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\25\Douglas Holtz-Eakin, A Cautionary Pension Lesson (2018),
https://www.americanactionforum.org/daily-dish/a-cautionary-pension-
lesson/.
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PRESENT LAW IS NOT SUFFICIENT TO ADDRESS THE MULTIEMPLOYER PENSION
CRISIS: NEW LEGISLATIVE ACTION IS NECESSARY
In December 2014, Congress passed and President Obama
signed the MPRA into law. The MPRA increased the premiums that
multiemployer pension plans pay to the PBGC and provided plans
new tools to address projected insolvency. One of those tools
permitted eligible multiemployer pension plans to apply to the
Treasury to reduce participants' benefits to avoid insolvency.
Central States was the first plan to apply to Treasury to
reduce benefits for an estimated two-thirds of the plan's
participants. In May 2016, Treasury rejected Central States'
application finding that it failed to satisfy certain MPRA
requirements. Another important and financially distressed plan
that is projected to be insolvent in the next few years, the
UMWA Pension Plan of 1974, is not a candidate for benefit
reductions under MPRA.
In April 2018, following the first JSC hearing, Congressman
Scott submitted a question for the record (QFR) to one of the
hearing's witnesses, Mr. Ted Goldman of the American Academy of
Actuaries. In his QFR, Congressman Scott asked if present law
was sufficient to address the looming failure of several large
and financially distressed multiemployer pension plans and the
insolvency of the PBGC's multiemployer program or if additional
legislative action is necessary. Mr. Goldman responded to the
QFR by saying that the provisions under the Pension Protection
Act of 2006 and MPRA are ``not sufficient to avoid the looming
insolvency for roughly 100 to 120 multiemployer plans.''\26\
The U.S. Chamber of Commerce made a similar point, noting that
``there is nothing that exists under current law that will save
the multiemployer system's most underfunded plans.''\27\
Specifically, there are no mechanisms or authorities within
present law to save the largest and most financially distressed
plans and there are insufficient resources in the PBGC's
multiemployer program to prevent its collapse. As the U.S.
Chamber of Commerce also noted, ``[i]t has become
``increasingly clear that additional legislative solutions are
necessary if the largest and most underfunded plans are to be
saved. If these plans become insolvent, the negative
repercussions will be felt throughout the U.S. economy.''\28\
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\26\The History and Structure of the Multiemployer Pension System
Before the Joint Select Committee on the Solvency of Multiemployer
Pension Plans, 115th Cong. (2018) (Response to a Question for the
Record by Ted Goldman at 38-39).
\27\United States Chamber of Commerce, The Multiemployer Pension
Plan Crisis: The History, Legislation, and What's Next (2017), https://
www.uschamber.com/sites/default/files/multiemployer_report_-_chamber_-
final.pdf.
\28\Id. at 2.
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H.R. 397 IS A RESPONSIBLE, BIPARTISAN SOLUTION TO THE MULTIEMPLOYER
PENSION CRISIS THAT SAFEGUARDS TAXPAYERS' MONEY AND SPARES RETIREES
HARM
The multiemployer pension crisis has been debated and
discussed extensively for years. The House Committee on
Education and Labor has held four hearings on the multiemployer
pension crisis since Congress last acted on the issue in
December 2014, when it passed the MPRA. Congress also created a
bipartisan, bicameral joint select committee on the
multiemployer pension crisis in the BBA in 2018. That joint
select committee convened five hearings. Those hearings
established what is likely to happen if Congress does act. As
the United States Chamber of Commerce put it:
Retirees will see their standard of living reduced.
At a minimum, they will have less income to spend in
local economies. The reduced spending will be felt by
businesses, especially in small communities. Less money
spent by retirees also means less paid to local
government in sales and other taxes. When tax revenue
decreases, the demand for social programs will
increase, because many retirees will likely lose their
homes and/or have difficulty paying for medical
expenses. This will cause many to become reliant on
social programs that have to be funded by taxpayers at
a time when tax revenue will be declining. Simply put,
pension plan insolvencies and a PBGC collapse will have
a cumulative negative effect on entire communities.
Individuals, government, and businesses will all suffer
unless a solution is found.\29\
\29\United States Chamber of Commerce, The Multiemployer Pension
Plan Crisis: The History, Legislation, and What's Next 28 (2017),
https://www.uschamber.com/sites/default/files/multiemployer_report_-
_chamber_-final.pdf.
To date, there has been one bipartisan bill--H.R. 397--
introduced in Congress that addresses the immediate crisis,
protects retirees' hard-earned pensions, avoids a lot of
misery, and likely saves the taxpayers money compared with
doing nothing.
Section-by-Section Analysis
Section 1. Short title
The section specifies that the bill may be cited as the
Rehabilitation for Multiemployer Pensions Act.
Section 2. Pension Rehabilitation Administration; establishment; powers
This section establishes the Pension Rehabilitation
Administration (PRA), a new agency within the U.S. Department
of the Treasury. The PRA is headed by a Director, who is
appointed by the President. The term of office of the Director
is 5 years. The Director may appoint deputy directors, officers
and employees. The Director may contract for financial and
actuarial services. The Treasury Secretary may transfer funding
within Treasury's appropriated budget that is reasonably
necessary to fund the PRA's administrative and operating
expenses.
Section 3. Pension Rehabilitation Trust Fund
This section amends the relevant portion of the Internal
Revenue Code (IRC) and adds a new section creating a Pension
Rehabilitation Trust Fund (Fund). The Fund is comprised of the
following amounts: proceeds from the sale of bonds/obligations
detailed in Section 6, interest and principal payments on the
loans to pension plans detailed in Section 4, and transfers of
funding from the Treasury Secretary detailed in Section 2.
Amounts in the Fund are available to the PRA without further
appropriation for the purposes of implementing the loan program
under Section 4, payment of principal and interest on bonds/
obligations under Section 6, and administrative and operating
expenses of the PRA.
Section 4. Loan program for multiemployer defined benefit plans
This section amends the relevant portions of the IRC and
the Employee Retirement Income Security Act of 1974 (ERISA) to
authorize the PRA to make loans to certain multiemployer plans.
The section details the loan application process, interest
rate, and repayment schedules. The section outlines certain
requirements and conditions for receipt of a loan. The section
also details how the loan can be invested and the way the loan
investment portfolio is overseen.
To be eligible for a loan, plans must fall into one of the
following categories as of the date of enactment of the bill:
Plans that are in ``critical and declining''
status (projected to be insolvent within the next 15
years (or within 20 years in some situations));
Plans which had a suspension of benefits
application approved under the MPRA;
``Critical'' status plans that are less than
40% funded and have an active to inactive participant
ratio of less than 2 to 3; or
Currently insolvent plans that are receiving
assistance from the PBGC, if the insolvency occurred
after December 16, 2014.
The Director of the PRA must consult and share loan
application materials with the Secretaries of Treasury and
Labor as well as the Director of the PBGC before making any
loan.
The loan program must be established no later than
September 30, 2019. Guidance regarding the program must be
promulgated by the Director of the PRA, in consultation with
the PBGC and U.S. Department of Labor, no later than December
31, 2019. However, the bill permits a plan to apply before
either date and requires the PRA to approve the application and
make the loan if it is necessary to avoid any suspension of
pension benefits.
The loan terms require the plan to make interest-only
payments for 29 years with final interest and principal
repayment due in year 30. However, the bill includes an
alternative repayment schedule to incentivize early repayment
of the loan. During the application process, a plan may elect
to pay interest-only on the loan for the first 20 years and
then repay the principal in 10 equal installments between year
20 and year 30. For those plans that elect the alternative
repayment schedule, the loan interest rate is reduced by 50
basis points (0.5%).
As a condition of receiving the loan, the plan must
stipulate that it will not do any of the following during the
loan period:
Increase participants' benefits (excluding
the reinstating of those pensions benefits that were
previously cut under MPRA);
Allow any employer to reduce contributions;
or
Accept any collective bargaining agreement
that reduces contribution rates.
The plan must also stipulate that it will do the following:
In the case of a plan for which an
application for suspension of benefits under MPRA was
previously approved, reinstate benefits or not carry
out benefit cuts;
Provide the statutorily required periodic
actuarial reports to the Internal Revenue Service;
Continue to pay all premiums due to the
PBGC; and
Meet other such requirements as the Director
of the PRA provides in the loan terms.
Loans must have as low an interest rate as is feasible.
Such rate must be determined by the PRA and must not be lower
than the interest rate on 30-year Treasury securities on the
first day of the calendar year in which the loan is issued (for
2019, that is 2.97%). In addition, the rate must not exceed the
above-mentioned interest rate plus 20 basis points (0.2%) or
the amount that is sufficient to administer the program
(whichever is greater).
In applying to the PRA for a loan, the plan must
demonstrate that:
The loan will enable the plan to avoid
insolvency during the loan term, or for those plans
that are already insolvent, the loan will enable the
plan to emerge from insolvency within the remainder of
the 30-year period or avoid reentering insolvency
within the remainder of the 30-year period.
The plan is reasonably expected to pay
benefits and the interest on the loan as well as
accumulate sufficient funds to repay the principal when
due.
As part of the application process, the plan also must do
the following:
Provide its most recently filed Form 5500
and any other necessary information to enable the PRA
to determine the loan amount;
Stipulate whether it is also applying for
PBGC financial assistance in combination with the loan
to enable the plan to avoid insolvency and protect
pensions;
State how the loan proceeds will be
conservatively invested (further details below) and who
will be the investment manager; and
Include such other information required by
the Director of the PRA.
In evaluating the plan's application, the Director of the
PRA must accept the determinations and demonstrations in the
application unless the Director, in consultation with the
Director of the PBGC and Secretary of Labor, concludes that
such determinations and demonstrations are unreasonable or
inconsistent with the rules issued by the Director (detailed
below).
The Director of the PRA is required to approve or deny the
plan's application within 90 days after its submission. An
application shall be deemed approved unless, within such 90
days, the Director notifies the plan of its denial and the
reasons for such denial. Any approval or denial of a plan's
application by the Director of the PRA shall be treated as a
final agency action.
Any plan to which a suspension of benefits under MPRA has
been approved is required to apply for a loan. For any such
plan, the Director of the PRA shall provide for a simplified
application process. The Director of the PRA is also required
to provide for a simplified loan application process for
insolvent plans already receiving PBGC financial assistance.
The amount of the loan is the amount specified in the
application to fund the plan's obligations for the benefits of
participants, beneficiaries in pay status, and participants who
separated from service but are not yet in pay status
(``terminated vested'' participants) at the time the loan is
made. However, if at the time of application, the plan
determines that making full payments on a 30-year repayment
schedule would cause the plan to be within 18 months of
becoming insolvent at any point during the 30-year period, then
the loan amount shall be reduced to an amount that the plan
determines it can repay without becoming insolvent.
For those plans that have suspended benefits, the requested
loan amount must be sufficient to provide benefits, including
the retroactive payment of benefits that would have been
payable during the period of suspension.
In the case of a plan that is also applying for financial
assistance from the PBGC, the plan must jointly submit a loan
application to the PRA and a financial assistance application
to the PBGC with information necessary to determine eligibility
for and amount of the loan and financial assistance. In such
cases, if the financial assistance is granted, the amount of
the assistance from the PBGC would be the amount necessary for
the plan to become or remain solvent over the 30-year loan term
(factoring in the amount of the loan from the PRA).
Plans that receive a loan must invest it in one or a
combination of the following low-risk options:
Annuity contracts issued by an insurance
company with a credit rating of A or better by a
nationally recognized statistical credit rating
organization. The annuity contract purchase must meet
fiduciary standards under ERISA.
Cash matching or duration matching
portfolios consisting of fixed income investments that
are investment grade (as rated by a nationally
recognized statistical credit rating organization)\30\
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\30\Cash matching is a strategy where the investor invests in
certain securities with an expected return so that the investor will be
able to pay for future liabilities. Duration matching is a strategy of
assembling a bond portfolio so that the duration of the portfolio
equals the duration of the investor's liability stream.
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Any other portfolios prescribed by the
Treasury Secretary in regulations that have a similar
low risk profile as cash matching or duration matching
and is equally protective of participants' and
beneficiaries' interests.
Current law (the fiduciary provisions of Title I of ERISA)
will govern the plan sponsor and the investment managers, who
must acknowledge that they are plan fiduciaries under ERISA.
Annuity contracts and portfolios shall be used solely to
provide benefits to participants and beneficiaries until all
benefits have been paid. These contracts and portfolios shall
remain in the plan asset pool but shall be segregated from all
other plan assets in terms of accounting and investment
performance measures.
Except in the case of annuity purchase, the PRA maintains
oversight over all loan proceeds used to fund retiree
liabilities. Such oversight shall include a mandatory triennial
review of the adequacy of the portfolio to fund retiree
benefits. If such review determines that there is an
inadequacy, the plan must take remedial actions to cure such
deficiency within five years. Such oversight will also include
approval of any decision by the plan to change the investment
manager overseeing the portfolio. The Participant and Plan
Sponsor Advocate, a position that was established under ERISA
in 2012 by the Moving Ahead for Progress in the 21st Century
Act (MAP-21), will act as the ombudsman for participants and
beneficiaries who had annuity contracts purchased for them and/
or are covered by portfolios.
If a plan is unable to make payments on a loan when due,
the PRA must negotiate revised terms for repayment with the
plan, but only to the extent necessary to avoid insolvency in
the following 18 months. Such revised terms include installment
payments over a reasonable period or forgiveness of a portion
of the loan principal.
The Director of the PRA, in consultation with the PBGC and
the U.S. Department of Labor, is authorized to issue rules
regarding the form, content, and process of loan applications,
the actuarial standards and assumptions to be used in making
estimates and projections in the applications, and the
assumptions regarding interest rates, mortality, and
distributions with respect to the portfolios.
The relevant portion of the IRC is amended to ensure that
the PRA loan is not treated as unrelated business income.
Section 5. Coordination with withdrawal liability and funding rules
This section amends the relevant portions of ERISA and the
IRC to address how a plan's receipt of a PRA loan impacts the
withdrawal liability of any employer that exits the plan before
the end of the 30-year loan repayment period.\31\ The section
also amends the relevant portions of ERISA and the IRC to
address how a plan's receipt of a PRA loan impacts its minimum
funding requirements.\32\
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\31\The Multiemployer Pension Plan Amendments Act of 1980 (MPPA),
Pub. L. No. 96-364, 94 Stat. 1208, introduced withdrawal liability to
prevent employers from exiting a financially troubled multiemployer
plan without paying a proportional share of the plan's underfunding. In
essence, withdrawal liability is the amount of money an employer owes
when it leaves a plan based on the employer's share of the plan's
unfunded vested benefits. MPPA required a withdrawal liability
assessment from employers and a schedule of payments.
\32\ERISA imposed minimum funding requirements on private sector
pension plans. The minimum requirements are determined annually based
on a notional ``funding standard account.'' Under the funding standard
account calculations, employer contributions must cover plan costs,
which include the normal cost and amortizations of changes in the
unfunded liability over a fixed period.
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If an employer withdraws from a multiemployer plan before
the end of the 30-year loan repayment period, the employer's
withdrawal liability shall be calculated as if the plan was
experiencing what is referred to as a ``mass withdrawal''
(which occurs when all or substantially all the employers in a
multiemployer plan leave the plan). In practice, this means
that the employer's liability would be calculated under the
normal rules except there would not be a 20-year cap on the
number of withdrawal liability payments. Further, the PBGC's
single-employer plan termination actuarial assumptions are
required to be used to value benefits.
The annuity contracts and investment portfolios created by
the loan proceeds would not be considered when determining any
exiting employer's withdrawal liability, but either the
benefits provided under such contracts and portfolios or the
remaining payments due on the loan (whichever is greater) would
be considered.
The annuity contracts and fixed income portfolios purchased
with the loan proceeds and the benefits covered by the annuity
contracts or portfolios would not be considered in determining
a plan's minimum funding requirements set forth by ERISA and
the IRC. But the remaining payments due on the loan (interest
and principal) as well as benefits not covered by the annuity
contracts or portfolios would be considered.
Section 6. Issuance of treasury bonds
The section describes how Treasury funds the loan program.
Specifically, the Treasury Secretary shall transfer from the
general fund to the Fund amounts necessary to fund the loan
program, including proceeds from the Treasury Secretary's
issuance of bonds/obligations.
Section 7. Reports of plans receiving pension rehabilitation loans
The section amends the relevant portions of the IRC to
include a new reporting requirement for plans that receive a
PRA loan and a monetary penalty for those plans that fail to
comply.
For a plan receiving a PRA loan, it must file an annual
report with the Treasury Secretary that includes the following
information: its funded percentage, market value of plan
assets, total value of contributions made by employers and
employees, total value of benefits, cash flow projections
(going back nine plan years), funding standard account
projections (going back nine plan years) and the assumptions
relied upon in making such projections, total value of
investment gains or losses, and the number of participants and
beneficiaries (including whether there has been any significant
reduction in active participants and the reason for any such
reduction).
The annual report must also include a list of any employers
that withdrew from the plan and paid withdrawal liability. The
list must include any exiting employer's annual withdrawal
liability payment amount and the number of years remaining on
the payment schedule.
The annual report must include information on any material
changes to the benefits, accrual rates, and contribution rates,
the amount of financial assistance received in that year and
preceding ones, and the information contained on the most
recent annual funding notice.
The annual report must also include copies of the plan
document and amendments, a breakdown of administrative expenses
of the plan, participant census data and distribution of
benefits, the most recent actuarial valuation report, copies of
collective bargaining agreements and financial reports, and
such other information as the Treasury Secretary, in
consultation with the Director of the PRA, may require.
The required report must be submitted electronically and be
shared with the Secretary of Labor and the Director of the
PBGC. Each plan submitting the required report must also
provide a summary of it to each participant and beneficiary as
well as to each contributing employer.
In the case of a failure to provide the required report,
the plan must pay $100 for each day during which such failure
continues, and such amount must not be paid from the plan's
assets.
Section 8. PBGC financial assistance
The section amends the relevant portion of ERISA to detail
the process by which eligible plans would apply for PBGC
assistance, how the PBGC would review plan applications, and
how PBGC assistance would be calculated and provided.
Those plans eligible for a loan may apply jointly for a
loan and financial assistance. The application for financial
assistance to the PBGC must demonstrate, based on the plan's
actuary, that after receipt of the anticipated loan amount, the
plan will still be or remain insolvent within the 30-year
period.
In reviewing the plan's application for financial
assistance, the PBGC shall review the demonstrations and
assumptions submitted with the loan application and provide
guidance regarding such assumptions prior to approving any
application. The PBGC may deny any application if the
assumptions and determinations are unreasonable or inconsistent
with any rules it issues. The PBGC also may deny an application
if the plan and the PBGC are unable to reach agreement on
assumptions and determinations.
The financial assistance provided to any plan shall be an
amount equal to the sum of the percentage of future benefits
payable to participants and beneficiaries in pay status and the
percentage of benefits to which terminated vested participants
are entitled, which if combined with the loan, would allow the
plan to avoid projected insolvency. There is a limit on the
amount of PBGC assistance a plan can receive. It cannot exceed
the PBGC maximum guarantee benefit with respect to all
participants and beneficiaries of the plan, and it must be
determined as if the plan were insolvent at the date of the
application.
An insolvent plan currently receiving PBGC assistance under
current law can apply for PBGC assistance under the terms of
this bill. In such case, any additional PBGC financial
assistance that is provided to an insolvent plan shall be in an
amount that factors in the loan and the current PBGC assistance
to enable the plan to emerge from insolvency.
The PBGC shall provide the financial assistance in such
amounts that it determines are necessary for the plan to avoid
insolvency during the 5-plan year period beginning with the
current plan year. However, in the case of insolvent plans, the
PBGC financial assistance shall be provided in a lump sum, if
necessary, no later than December 31, 2020.
Current law provisions regarding the repayment of PBGC
assistance shall apply to PBGC assistance under the terms of
this bill, except that repayment of any assistance to the PBGC
shall not be required to be repaid before the date on which the
loan is repaid in full. The PBGC also may forgo repayment of
the financial assistance if necessary to avoid the suspension
of participants' accrued benefits. The section appropriates
such sums as may be necessary for each fiscal year to enable
the Director of the PBGC to provide this financial assistance,
including necessary administrative and operating expenses
relating to such assistance.
Explanation of Amendments
The Amendment in the Nature of a Substitute is explained in
the descriptive portions of this report.
Application of Law to the Legislative Branch
H.R. 397 does not apply to terms and conditions of
employment or to access to public services or accommodations
within the legislative branch.
Unfunded Mandate Statement
Pursuant to Section 423 of the Congressional Budget and
Impoundment Control Act (as amended by Section 101(a)(2) of the
Unfunded Mandates Reform Act, Pub. L. 104-4), H.R. 397 contains
no unfunded mandates. The Committee traditionally adopts as its
own the cost estimate prepared by the Director of the
Congressional Budget Office (CBO) pursuant to section 402 of
the Congressional Budget Act of 1974. The Committee reports
that because this cost estimate was not timely submitted to the
Committee before the filing of this report, the Committee is
not in a position to make a cost estimate for H.R. 1500, as
amended.
Earmark Statement
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 397 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as described in clauses 9(e), 9(f), and 9(g) of rule
XXI.
Roll Call Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
following roll call votes occurred during the Committee's
consideration of H.R. 397:
Statement of Performance Goals and Objectives
Pursuant to clause (3)(c) of rule XIII of the Rules of the
House of Representatives, the goals of H.R. 397 are to protect
and preserve Americans' hard-earned pensions.
Duplication of Federal Programs
Pursuant to clause 3(c)(5) of rule XIII of the Rules of the
House of Representatives, the Committee states that no
provision of H.R. 397 establishes or reauthorizes a program of
the Federal Government known to be duplicative of another
federal program, a program that was included in any report from
the Government Accountability Office to Congress pursuant to
section 21 of Public Law 111-139, or a program related to a
program identified in the most recent Catalog of Federal
Domestic Assistance.
Hearings
Pursuant to section 103(i) of H. Res. 6 for the 116th
Congress, the Committee held a legislative hearing entitled
``The Cost of Inaction: Why Congress Must Address the
Multiemployer Pension Crisis,'' which was used to consider H.R.
397. The Committee heard testimony and was presented with data
on the costs and consequences to retirees, active workers,
participating employers, and taxpayers if Congress does not
resolve the multiemployer pension crisis. The Committee heard
testimony from: Mr. Josh Shapiro, Vice President, Pensions,
American Academy of Actuaries, Washington, DC; Ms. Mary
Moorcamp, Chief Legal and External Affairs Officer, Schnuck
Markets, St. Louis, MO; Mr. James Morgan, Bakery Pension Fund
Retiree, Blue Island, IL; Mr. James Naughton, Assistant
Professor and Donald P. Jacobs Scholar, Kellogg School of
Management, Northwestern University, Evanston, IL; Mr. Glenn
Spencer, Senior Vice President, Employment Policy Division,
U.S. Chamber of Commerce, Washington, DC; Mr. Charles Blahous,
J. Fish and Lillian F. Smith Chair and Senior Research
Strategist, Mercatus Center at George Mason University,
Arlington, VA; and Ms. Mariah Becker, Director of Research and
Education, National Coordinating Committee for Multiemployer
Plans, Washington, DC.
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the Committee's oversight findings and recommendations are
reflected in the descriptive portions of this report.
New Budget Authority and CBO Cost Estimate
Pursuant to clause 3(c)(2) of rule XIII of the Rules of the
House of Representatives and section 308(a) of the
Congressional Budget Act of 1974, and pursuant to clause
3(c)(3) of rule XIII of the Rules of the House of
Representatives and section 402 of the Congressional Budget Act
of 1974, the Committee has requested but not received a cost
estimate for the bill from the Director of the Congressional
Budget Office.
Committee Cost Estimate
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison of the
costs that would be incurred in carrying out H.R. 397. The
Committee traditionally adopts as its own the cost estimate
prepared by the Director of the Congressional Budget Office
pursuant to section 402 of the Congressional Budget Act of
1974. The Committee reports that because this cost estimate was
not timely submitted to the Committee before the filing of this
report, the Committee is not in a position to make a cost
estimate for H.R. 397, as amended.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, H.R. 397, as reported, are shown as follows:
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, and existing law in which no
change is proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter D--DEFERRED COMPENSATION, ETC.
* * * * * * *
PART III--RULES RELATING TO MINIMUM FUNDING STANDARDS AND BENEFIT
LIMITATIONS
* * * * * * *
Subpart A--MINIMUM FUNDING STANDARDS FOR PENSION PLANS
* * * * * * *
SEC. 432. ADDITIONAL FUNDING RULES FOR MULTIEMPLOYER PLANS IN
ENDANGERED STATUS OR CRITICAL STATUS.
(a) General rule.--For purposes of this part, in the case of
a multiemployer plan in effect on July 16, 2006--
(1) if the plan is in endangered status--
(A) the plan sponsor shall adopt and
implement a funding improvement plan in
accordance with the requirements of subsection
(c), and
(B) the requirements of subsection (d) shall
apply during the funding plan adoption period
and the funding improvement period,
(2) if the plan is in critical status--
(A) the plan sponsor shall adopt and
implement a rehabilitation plan in accordance
with the requirements of subsection (e), and
(B) the requirements of subsection (f) shall
apply during the rehabilitation plan adoption
period and the rehabilitation period, and
(3) if the plan is in critical and declining status--
(A) the requirements of paragraph (2) shall
apply to the plan; and
(B) the plan sponsor may, by plan amendment,
suspend benefits in accordance with the
requirements of subsection (e)(9).
(b) Determination of endangered and critical status.--For
purposes of this section--
(1) Endangered status.--A multiemployer plan is in
endangered status for a plan year if, as determined by
the plan actuary under paragraph (3), the plan is not
in critical status for the plan year and is not
described in paragraph (5), and, as of the beginning of
the plan year, either--
(A) the plan's funded percentage for such
plan year is less than 80 percent, or
(B) the plan has an accumulated funding
deficiency for such plan year, or is projected
to have such an accumulated funding deficiency
for any of the 6 succeeding plan years, taking
into account any extension of amortization
periods under section 431(d).
For purposes of this section, a plan shall be treated
as in seriously endangered status for a plan year if
the plan is described in both subparagraphs (A) and
(B).
(2) Critical status.--A multiemployer plan is in
critical status for a plan year if, as determined by
the plan actuary under paragraph (3), the plan is
described in 1 or more of the following subparagraphs
as of the beginning of the plan year:
(A) A plan is described in this subparagraph
if--
(i) the funded percentage of the plan
is less than 65 percent, and
(ii) the sum of--
(I) the fair market value of
plan assets, plus
(II) the present value of the
reasonably anticipated employer
contributions for the current
plan year and each of the 6
succeeding plan years, assuming
that the terms of all
collective bargaining
agreements pursuant to which
the plan is maintained for the
current plan year continue in
effect for succeeding plan
years,
is less than the present value of all
nonforfeitable benefits projected to be payable
under the plan during the current plan year and
each of the 6 succeeding plan years (plus
administrative expenses for such plan years).
(B) A plan is described in this subparagraph
if--
(i) the plan has an accumulated
funding deficiency for the current plan
year, not taking into account any
extension of amortization periods under
section 431(d), or
(ii) the plan is projected to have an
accumulated funding deficiency for any
of the 3 succeeding plan years (4
succeeding plan years if the funded
percentage of the plan is 65 percent or
less), not taking into account any
extension of amortization periods under
section 431(d).
(C) A plan is described in this subparagraph
if--
(i)(I) the plan's normal cost for the
current plan year, plus interest
(determined at the rate used for
determining costs under the plan) for
the current plan year on the amount of
unfunded benefit liabilities under the
plan as of the last date of the
preceding plan year, exceeds
(II) the present value of the
reasonably anticipated employer and
employee contributions for the current
plan year,
(ii) the present value, as of the
beginning of the current plan year, of
nonforfeitable benefits of inactive
participants is greater than the
present value of nonforfeitable
benefits of active participants, and
(iii) the plan has an accumulated
funding deficiency for the current plan
year, or is projected to have such a
deficiency for any of the 4 succeeding
plan years, not taking into account any
extension of amortization periods under
section 431(d).
(D) A plan is described in this subparagraph
if the sum of--
(i) the fair market value of plan
assets, plus
(ii) the present value of the
reasonably anticipated employer
contributions for the current plan year
and each of the 4 succeeding plan
years, assuming that the terms of all
collective bargaining agreements
pursuant to which the plan is
maintained for the current plan year
continue in effect for succeeding plan
years,
is less than the present value of all benefits
projected to be payable under the plan during
the current plan year and each of the 4
succeeding plan years (plus administrative
expenses for such plan years).
(3) Annual certification by plan actuary.--
(A) In general.--Not later than the 90th day
of each plan year of a multiemployer plan, the
plan actuary shall certify to the Secretary and
to the plan sponsor--
(i) whether or not the plan is in
endangered status for such plan year,
or would be in endangered status for
such plan year but for paragraph (5),
whether or not the plan is or will be
in critical status for such plan year
or for any of the succeeding 5 plan
years, and whether or not the plan is
or will be in critical and declining
status for such plan year, and
(ii) in the case of a plan which is
in a funding improvement or
rehabilitation period, whether or not
the plan is making the scheduled
progress in meeting the requirements of
its funding improvement or
rehabilitation plan.
(B) Actuarial projections of assets and
liabilities.--
(i) In general.--Except as provided
in clause (iv), in making the
determinations and projections under
this subsection, the plan actuary shall
make projections required for the
current and succeeding plan years of
the current value of the assets of the
plan and the present value of all
liabilities to participants and
beneficiaries under the plan for the
current plan year as of the beginning
of such year. The actuary's projections
shall be based on reasonable actuarial
estimates, assumptions, and methods
that, except as provided in clause
(iii), offer the actuary's best
estimate of anticipated experience
under the plan. The projected present
value of liabilities as of the
beginning of such year shall be
determined based on the most recent of
either--
(I) the actuarial statement
required under section 103(d)
of the Employee Retirement
Income Security Act of 1974
with respect to the most
recently filed annual report,
or
(II) the actuarial valuation
for the preceding plan year.
(ii) Determinations of future
contributions.--Any actuarial
projection of plan assets shall
assume--
(I) reasonably anticipated
employer contributions for the
current and succeeding plan
years, assuming that the terms
of the one or more collective
bargaining agreements pursuant
to which the plan is maintained
for the current plan year
continue in effect for
succeeding plan years, or
(II) that employer
contributions for the most
recent plan year will continue
indefinitely, but only if the
plan actuary determines there
have been no significant
demographic changes that would
make such assumption
unreasonable.
(iii) Projected industry activity.--
Any projection of activity in the
industry or industries covered by the
plan, including future covered
employment and contribution levels,
shall be based on information provided
by the plan sponsor, which shall act
reasonably and in good faith.
(iv) Projections relating to critical
status in succeeding plan years.--
Clauses (i) and (ii) (other than the
2nd sentence of clause (i)) may be
disregarded by a plan actuary in the
case of any certification of whether a
plan will be in critical status in a
succeeding plan year, except that a
plan sponsor may not elect to be in
critical status for a plan year under
paragraph (4) in any case in which the
certification upon which such election
would be based is made without regard
to such clauses.
(v) Projections of critical and
declining status.--In determining
whether a plan is in critical and
declining status as described in
subsection (e)(9), clauses (i), (ii),
and (iii) shall apply, except that--
(I) if reasonable, the plan
actuary shall assume that each
contributing employer in
compliance continues to comply
through the end of the
rehabilitation period or such
later time as provided in
subsection (e)(3)(A)(ii) with
the terms of the rehabilitation
plan that correspond to the
schedule adopted or imposed
under subsection (e), and
(II) the plan actuary shall
take into account any
suspensions of benefits
described in subsection (e)(9)
adopted in a prior plan year
that are still in effect.
(C) Penalty for failure to secure timely
actuarial certification.--Any failure of the
plan's actuary to certify the plan's status
under this subsection by the date specified in
subparagraph (A) shall be treated for purposes
of section 502(c)(2) of the Employee Retirement
Income Security Act of 1974 as a failure or
refusal by the plan administrator to file the
annual report required to be filed with the
Secretary under section 101(b)(1) of such Act.
(D) Notice.--
(i) In general.--In any case in which
it is certified under subparagraph (A)
that a multiemployer plan is or will be
in endangered or critical status for a
plan year or in which a plan sponsor
elects to be in critical status for a
plan year under paragraph (4), the plan
sponsor shall, not later than 30 days
after the date of the certification,
provide notification of the endangered
or critical status to the participants
and beneficiaries, the bargaining
parties, the Pension Benefit Guaranty
Corporation, and the Secretary of
Labor. In any case in which a plan
sponsor elects to be in critical status
for a plan year under paragraph (4),
the plan sponsor shall notify the
Secretary of such election not later
than 30 days after the date of such
certification or such other time as the
Secretary may prescribe by regulations
or other guidance.
(ii) Plans in critical status.--If it
is certified under subparagraph (A)
that a multiemployer plan is or will be
in critical status, the plan sponsor
shall include in the notice under
clause (i) an explanation of the
possibility that--
(I) adjustable benefits (as
defined in subsection (e)(8))
may be reduced, and
(II) such reductions may
apply to participants and
beneficiaries whose benefit
commencement date is on or
after the date such notice is
provided for the first plan
year in which the plan is in
critical status.
(iii) In the case of a multiemployer
plan that would be in endangered status
but for paragraph (5), the plan sponsor
shall provide notice to the bargaining
parties and the Pension Benefit
Guaranty Corporation that the plan
would be in endangered status but for
such paragraph.
(iv) Model notice.--The Secretary, in
consultation with the Secretary of
Labor, shall prescribe a model notice
that a multiemployer plan may use to
satisfy the requirements under clauses
(ii) and (iii).
(v) Notice of projection to be in
critical status in a future plan
year.--In any case in which it is
certified under subparagraph (A)(i)
that a multiemployer plan will be in
critical status for any of 5 succeeding
plan years (but not for the current
plan year) and the plan sponsor of such
plan has not made an election to be in
critical status for the plan year under
paragraph (4), the plan sponsor shall,
not later than 30 days after the date
of the certification, provide
notification of the projected critical
status to the Pension Benefit Guaranty
Corporation.
(4) Election to be in critical status.--
Notwithstanding paragraph (2) and subject to paragraph
(3)(B)(iv)--
(A) the plan sponsor of a multiemployer plan
that is not in critical status for a plan year
but that is projected by the plan actuary,
pursuant to the determination under paragraph
(3), to be in critical status in any of the
succeeding 5 plan years may, not later than 30
days after the date of the certification under
paragraph (3)(A), elect to be in critical
status effective for the current plan year,
(B) the plan year in which the plan sponsor
elects to be in critical status under
subparagraph (A) shall be treated for purposes
of this section as the first year in which the
plan is in critical status, regardless of the
date on which the plan first satisfies the
criteria for critical status under paragraph
(2), and
(C) a plan that is in critical status under
this paragraph shall not emerge from critical
status except in accordance with subsection
(e)(4)(B).
(5) Special rule.--A plan is described in this
paragraph if--
(A) as part of the actuarial certification of
endangered status under paragraph (3)(A) for
the plan year, the plan actuary certifies that
the plan is projected to no longer be described
in either paragraph (1)(A) or paragraph (1)(B)
as of the end of the tenth plan year ending
after the plan year to which the certification
relates, and
(B) the plan was not in critical or
endangered status for the immediately preceding
plan year.
(6) Critical and declining status.--For purposes of
this section, a plan in critical status shall be
treated as in critical and declining status if the plan
is described in one or more of subparagraphs (A), (B),
(C), and (D) of paragraph (2) and the plan is projected
to become insolvent within the meaning of section 418E
during the current plan year or any of the 14
succeeding plan years (19 succeeding plan years if the
plan has a ratio of inactive participants to active
participants that exceeds 2 to 1 or if the funded
percentage of the plan is less than 80 percent).
(c) Funding improvement plan must be adopted for
multiemployer plans in endangered status.--
(1) In general.--In any case in which a multiemployer
plan is in endangered status for a plan year, the plan
sponsor, in accordance with this subsection--
(A) shall adopt a funding improvement plan
not later than 240 days following the required
date for the actuarial certification of
endangered status under subsection (b)(3)(A),
and
(B) within 30 days after the adoption of the
funding improvement plan--
(i) shall provide to the bargaining
parties 1 or more schedules showing
revised benefit structures, revised
contribution structures, or both,
which, if adopted, may reasonably be
expected to enable the multiemployer
plan to meet the applicable benchmarks
in accordance with the funding
improvement plan, including--
(I) one proposal for
reductions in the amount of
future benefit accruals
necessary to achieve the
applicable benchmarks, assuming
no amendments increasing
contributions under the plan
(other than amendments
increasing contributions
necessary to achieve the
applicable benchmarks after
amendments have reduced future
benefit accruals to the maximum
extent permitted by law), and
(II) one proposal for
increases in contributions
under the plan necessary to
achieve the applicable
benchmarks, assuming no
amendments reducing future
benefit accruals under the
plan, and
(ii) may, if the plan sponsor deems
appropriate, prepare and provide the
bargaining parties with additional
information relating to contribution
rates or benefit reductions,
alternative schedules, or other
information relevant to achieving the
applicable benchmarks in accordance
with the funding improvement plan.
For purposes of this section, the term
``applicable benchmarks'' means the
requirements applicable to the multiemployer
plan under paragraph (3) (as modified by
paragraph (5)).
(2) Exception for years after process begins.--
Paragraph (1) shall not apply to a plan year if such
year is in a funding plan adoption period or funding
improvement period by reason of the plan being in
endangered status for a preceding plan year. For
purposes of this section, such preceding plan year
shall be the initial determination year with respect to
the funding improvement plan to which it relates.
(3) Funding improvement plan.--For purposes of this
section--
(A) In general.--A funding improvement plan
is a plan which consists of the actions,
including options or a range of options to be
proposed to the bargaining parties, formulated
to provide, based on reasonably anticipated
experience and reasonable actuarial
assumptions, for the attainment by the plan
during the funding improvement period of the
following requirements:
(i) Increase in plan's funding
percentage.--The plan's funded
percentage as of the close of the
funding improvement period equals or
exceeds a percentage equal to the sum
of--
(I) such percentage as of the
beginning of the first plan
year for which the plan is
certified to be in endangered
status pursuant to paragraph
(b)(3), plus
(II) 33 percent of the
difference between 100 percent
and the percentage under
subclause (I).
(ii) Avoidance of accumulated funding
deficiencies.--No accumulated funding
deficiency for the last plan year
during the funding improvement period
(taking into account any extension of
amortization periods under section
431(d)).
(B) Seriously endangered plans.--In the case
of a plan in seriously endangered status,
except as provided in paragraph (5),
subparagraph (A)(i)(II) shall be applied by
substituting ``20 percent'' for ``33 percent''.
(4) Funding improvement period.--For purposes of this
section--
(A) In general.--The funding improvement
period for any funding improvement plan adopted
pursuant to this subsection is the 10-year
period beginning on the first day of the first
plan year of the multiemployer plan beginning
after the earlier of--
(i) the second anniversary of the
date of the adoption of the funding
improvement plan, or
(ii) the expiration of the collective
bargaining agreements in effect on the
due date for the actuarial
certification of endangered status for
the initial determination year under
subsection (b)(3)(A) and covering, as
of such due date, at least 75 percent
of the active participants in such
multiemployer plan.
(B) Seriously endangered plans.--In the case
of a plan in seriously endangered status,
except as provided in paragraph (5),
subparagraph (A) shall be applied by
substituting ``15-year period'' for ``10-year
period''.
(C) Coordination with changes in status.--
(i) Plans no longer in endangered
status.--If the plan's actuary
certifies under subsection (b)(3)(A)
for a plan year in any funding plan
adoption period or funding improvement
period that the plan is no longer in
endangered status and is not in
critical status, the funding plan
adoption period or funding improvement
period, whichever is applicable, shall
end as of the close of the preceding
plan year.
(ii) Plans in critical status.--If
the plan's actuary certifies under
subsection (b)(3)(A) for a plan year in
any funding plan adoption period or
funding improvement period that the
plan is in critical status, the funding
plan adoption period or funding
improvement period, whichever is
applicable, shall end as of the close
of the plan year preceding the first
plan year in the rehabilitation period
with respect to such status.
(D) Plans in endangered status at end of
period.--If the plan's actuary certifies under
subsection (b)(3)(A) for the first plan year
following the close of the period described in
subparagraph (A) that the plan is in endangered
status, the provisions of this subsection and
subsection (d) shall be applied as if such
first plan year were an initial determination
year, except that the plan may not be amended
in a manner inconsistent with the funding
improvement plan in effect for the preceding
plan year until a new funding improvement plan
is adopted.
(5) Special rules for seriously endangered plans more
than 70 percent funded.--
(A) In general.--If the funded percentage of
a plan in seriously endangered status was more
than 70 percent as of the beginning of the
initial determination year--
(i) paragraphs (3)(B) and (4)(B)
shall apply only if the plan's actuary
certifies, within 30 days after the
certification under subsection
(b)(3)(A) for the initial determination
year, that, based on the terms of the
plan and the collective bargaining
agreements in effect at the time of
such certification, the plan is not
projected to meet the requirements of
paragraph (3)(A) (without regard to
paragraphs (3)(B) and (4)(B)), and
(ii) if there is a certification
under clause (i), the plan may, in
formulating its funding improvement
plan, only take into account the rules
of paragraph (3)(B) and (4)(B) for plan
years in the funding improvement period
beginning on or before the date on
which the last of the collective
bargaining agreements described in
paragraph (4)(A)(ii) expires.
(B) Special rule after expiration of
agreements.--Notwithstanding subparagraph
(A)(ii), if, for any plan year ending after the
date described in subparagraph (A)(ii), the
plan actuary certifies (at the time of the
annual certification under subsection (b)(3)(A)
for such plan year) that, based on the terms of
the plan and collective bargaining agreements
in effect at the time of that annual
certification, the plan is not projected to be
able to meet the requirements of paragraph
(3)(A) (without regard to paragraphs (3)(B) and
(4)(B)), paragraphs (3)(B) and (4)(B) shall
continue to apply for such year.
(6) Updates to funding improvement plans and
schedules.--
(A) Funding improvement plan.--The plan
sponsor shall annually update the funding
improvement plan and shall file the update with
the plan's annual report under section 104 of
the Employee Retirement Income Security Act of
1974.
(B) Schedules.--The plan sponsor shall
annually update any schedule of contribution
rates provided under this subsection to reflect
the experience of the plan.
(C) Duration of schedule.--A schedule of
contribution rates provided by the plan sponsor
and relied upon by bargaining parties in
negotiating a collective bargaining agreement
shall remain in effect for the duration of that
collective bargaining agreement.
(7) Imposition of schedule where failure to adopt
funding improvement plan.--
(A) Initial contribution schedule.--If--
(i) a collective bargaining agreement
providing for contributions under a
multiemployer plan that was in effect
at the time the plan entered endangered
status expires, and
(ii) after receiving one or more
schedules from the plan sponsor under
paragraph (1)(B), the bargaining
parties with respect to such agreement
fail to adopt a contribution schedule
with terms consistent with the funding
improvement plan and a schedule from
the plan sponsor,
the plan sponsor shall implement the schedule
described in paragraph (1)(B)(i)(I) beginning
on the date specified in subparagraph (C).
(B) Subsequent contribution schedule.--If--
(i) a collective bargaining agreement
providing for contributions under a
multiemployer plan in accordance with a
schedule provided by the plan sponsor
pursuant to a funding improvement plan
(or imposed under subparagraph (A))
expires while the plan is still in
endangered status, and
(ii) after receiving one or more
updated schedules from the plan sponsor
under paragraph (6)(B), the bargaining
parties with respect to such agreement
fail to adopt a contribution schedule
with terms consistent with the updated
funding improvement plan and a schedule
from the plan sponsor,
then the contribution schedule applicable under
the expired collective bargaining agreement, as
updated and in effect on the date the
collective bargaining agreement expires, shall
be implemented by the plan sponsor beginning on
the date specified in subparagraph (C).
(C) Date of implementation.--The date
specified in this subparagraph is the date
which is 180 days after the date on which the
collective bargaining agreement described in
subparagraph (A) or (B) expires.
(8) Funding plan adoption period.--For purposes of
this section, the term ``funding plan adoption period''
means the period beginning on the date of the
certification under subsection (b)(3)(A) for the
initial determination year and ending on the day before
the first day of the funding improvement period.
(d) Rules for operation of plan during adoption and
improvement periods.--
(1) Compliance with funding improvement plan.--
(A) In general.--A plan may not be amended
after the date of the adoption of a funding
improvement plan under subsection (c) so as to
be inconsistent with the funding improvement
plan.
(B) Special rules for benefit increases.--A
plan may not be amended after the date of the
adoption of a funding improvement plan under
subsection (c) so as to increase benefits,
including future benefit accruals, unless the
plan actuary certifies that such increase is
paid for out of additional contributions not
contemplated by the funding improvement plan,
and, after taking into account the benefit
increase, the multiemployer plan still is
reasonably expected to meet the applicable
benchmark on the schedule contemplated in the
funding improvement plan.
(2) Special rules for plan adoption period.--During
the period beginning on the date of the certification
under subsection (b)(3)(A) for the initial
determination year and ending on the date of the
adoption of a funding improvement plan--
(A) the plan sponsor may not accept a
collective bargaining agreement or
participation agreement with respect to the
multiemployer plan that provides for--
(i) a reduction in the level of
contributions for any participants,
(ii) a suspension of contributions
with respect to any period of service,
or
(iii) any new direct or indirect
exclusion of younger or newly hired
employees from plan participation, and
(B) no amendment of the plan which increases
the liabilities of the plan by reason of any
increase in benefits, any change in the accrual
of benefits, or any change in the rate at which
benefits become nonforfeitable under the plan
may be adopted unless the amendment is required
as a condition of qualification under part I of
subchapter D of chapter 1 or to comply with
other applicable law.
(e) Rehabilitation plan must be adopted for multiemployer
plans in critical status.--
(1) In general.--In any case in which a multiemployer
plan is in critical status for a plan year, the plan
sponsor, in accordance with this subsection--
(A) shall adopt a rehabilitation plan not
later than 240 days following the required date
for the actuarial certification of critical
status under subsection (b)(3)(A), and
(B) within 30 days after the adoption of the
rehabilitation plan--
(i) shall provide to the bargaining
parties 1 or more schedules showing
revised benefit structures, revised
contribution structures, or both,
which, if adopted, may reasonably be
expected to enable the multiemployer
plan to emerge from critical status in
accordance with the rehabilitation
plan, and
(ii) may, if the plan sponsor deems
appropriate, prepare and provide the
bargaining parties with additional
information relating to contribution
rates or benefit reductions,
alternative schedules, or other
information relevant to emerging from
critical status in accordance with the
rehabilitation plan.
The schedule or schedules described in subparagraph
(B)(i) shall reflect reductions in future benefit
accruals and adjustable benefits, and increases in
contributions, that the plan sponsor determines are
reasonably necessary to emerge from critical status.
One schedule shall be designated as the default
schedule and such schedule shall assume that there are
no increases in contributions under the plan other than
the increases necessary to emerge from critical status
after future benefit accruals and other benefits (other
than benefits the reduction or elimination of which are
not permitted under section 411(d)(6)) have been
reduced to the maximum extent permitted by law.
(2) Exception for years after process begins.--
Paragraph (1) shall not apply to a plan year if such
year is in a rehabilitation plan adoption period or
rehabilitation period by reason of the plan being in
critical status for a preceding plan year. For purposes
of this section, such preceding plan year shall be the
initial critical year with respect to the
rehabilitation plan to which it relates.
(3) Rehabilitation plan.--For purposes of this
section--
(A) In general.--A rehabilitation plan is a
plan which consists of--
(i) actions, including options or a
range of options to be proposed to the
bargaining parties, formulated, based
on reasonably anticipated experience
and reasonable actuarial assumptions,
to enable the plan to cease to be in
critical status by the end of the
rehabilitation period and may include
reductions in plan expenditures
(including plan mergers and
consolidations), reductions in future
benefit accruals or increases in
contributions, if agreed to by the
bargaining parties, or any combination
of such actions, or
(ii) if the plan sponsor determines
that, based on reasonable actuarial
assumptions and upon exhaustion of all
reasonable measures, the plan can not
reasonably be expected to emerge from
critical status by the end of the
rehabilitation period, reasonable
measures to emerge from critical status
at a later time or to forestall
possible insolvency (within the meaning
of section 4245 of the Employee
Retirement Income Security Act of
1974).
A rehabilitation plan must provide annual
standards for meeting the requirements of such
rehabilitation plan. Such plan shall also
include the schedules required to be provided
under paragraph (1)(B)(i) and if clause (ii)
applies, shall set forth the alternatives
considered, explain why the plan is not
reasonably expected to emerge from critical
status by the end of the rehabilitation period,
and specify when, if ever, the plan is expected
to emerge from critical status in accordance
with the rehabilitation plan.
(B) Updates to rehabilitation plan and
schedules.--
(i) Rehabilitation plan.--The plan
sponsor shall annually update the
rehabilitation plan and shall file the
update with the plan's annual report
under section 104 of the Employee
Retirement Income Security Act of 1974.
(ii) Schedules.--The plan sponsor
shall annually update any schedule of
contribution rates provided under this
subsection to reflect the experience of
the plan.
(iii) Duration of schedule.--A
schedule of contribution rates provided
by the plan sponsor and relied upon by
bargaining parties in negotiating a
collective bargaining agreement shall
remain in effect for the duration of
that collective bargaining agreement.
(C) Imposition of schedule where failure to
adopt rehabilitation plan.--
(i) Initial contribution schedule.--
If--
(I) a collective bargaining
agreement providing for
contributions under a
multiemployer plan that was in
effect at the time the plan
entered critical status
expires, and
(II) after receiving one or
more schedules from the plan
sponsor under paragraph (1)(B),
the bargaining parties with
respect to such agreement fail
to adopt a contribution
schedule with terms consistent
with the rehabilitation plan
and a schedule from the plan
sponsor under paragraph
(1)(B)(i),
the plan sponsor shall implement the schedule
described in the last sentence of paragraph (1)
beginning on the date specified in clause
(iii).
(ii) Subsequent contribution
schedule.--If--
(I) a collective bargaining
agreement providing for
contributions under a
multiemployer plan in
accordance with a schedule
provided by the plan sponsor
pursuant to a rehabilitation
plan (or imposed under
subparagraph (C)(i)) expires
while the plan is still in
critical status, and
(II) after receiving one or
more updated schedules from the
plan sponsor under subparagraph
(B)(ii), the bargaining parties
with respect to such agreement
fail to adopt a contribution
schedule with terms consistent
with the updated rehabilitation
plan and a schedule from the
plan sponsor,
then the contribution schedule applicable
under the expired collective bargaining
agreement, as updated and in effect on the date
the collective bargaining agreement expires,
shall be implemented by the plan sponsor
beginning on the date specified in clause
(iii).
(iii) Date of implementation.--The
date specified in this subparagraph is
the date which is 180 days after the
date on which the collective bargaining
agreement described in clause (ii) or
(iii) expires.
(4) Rehabilitation period.--For purposes of this
section--
(A) In general.--The rehabilitation period
for a plan in critical status is the 10-year
period beginning on the first day of the first
plan year of the multiemployer plan following
the earlier of--
(i) the second anniversary of the
date of the adoption of the
rehabilitation plan, or
(ii) the expiration of the collective
bargaining agreements in effect on the
due date for the actuarial
certification of critical status for
the initial critical year under
subsection (a)(1) and covering, as of
such date at least 75 percent of the
active participants in such
multiemployer plan.
If a plan emerges from critical status as
provided under subparagraph (B) before the end
of such 10-year period, the rehabilitation
period shall end with the plan year preceding
the plan year for which the determination under
subparagraph (B) is made.
(B) Emergence.--
(i) In general.--A plan in critical
status shall remain in such status
until a plan year for which the plan
actuary certifies, in accordance with
subsection (b)(3)(A), that--
(I) the plan is not described
in one or more of the
subparagraphs in subsection
(b)(2) as of the beginning of
the plan year,
(II) the plan is not
projected to have an
accumulated funding deficiency
for the plan year or any of the
9 succeeding plan years,
without regard to the use of
the shortfall method but taking
into account any extension of
amortization periods under
section 431(d)(2) or section
412(e) (as in effect prior to
the enactment of the Pension
Protection Act of 2006), and
(III) the plan is not
projected to become insolvent
within the meaning of section
418E for any of the 30
succeeding plan years.
(ii) Plans with certain amortization
extensions.--
(I) Special emergence rule.--
Notwithstanding clause (i), a
plan in critical status that
has an automatic extension of
amortization periods under
section 431(d)(1) shall no
longer be in critical status if
the plan actuary certifies for
a plan year, in accordance with
subsection (b)(3)(A), that--
(aa) the plan is not
projected to have an
accumulated funding
deficiency for the plan
year or any of the 9
succeeding plan years,
without regard to the
use of the shortfall
method but taking into
account any extension
of amortization periods
under section
431(d)(1), and
(bb) the plan is not
projected to become
insolvent within the
meaning of section 418E
for any of the 30
succeeding plan years,
regardless of whether the plan
is described in one or more of
the subparagraphs in subsection
(b)(2) as of the beginning of
the plan year.
(II) Reentry into critical
status.--A plan that emerges
from critical status under
subclause (I) shall not reenter
critical status for any
subsequent plan year unless--
(aa) the plan is
projected to have an
accumulated funding
deficiency for the plan
year or any of the 9
succeeding plan years,
without regard to the
use of the shortfall
method but taking into
account any extension
of amortization periods
under section 431(d),
or
(bb) the plan is
projected to become
insolvent within the
meaning of section 418E
for any of the 30
succeeding plan years.
(5) Rehabilitation plan adoption period.--For
purposes of this section, the term ``rehabilitation
plan adoption period'' means the period beginning on
the date of the certification under subsection
(b)(3)(A) for the initial critical year and ending on
the day before the first day of the rehabilitation
period.
(6) Limitation on reduction in rates of future
accruals.--Any reduction in the rate of future accruals
under the default schedule described in the last
sentence of paragraph (1) shall not reduce the rate of
future accruals below--
(A) a monthly benefit (payable as a single
life annuity commencing at the participant's
normal retirement age) equal to 1 percent of
the contributions required to be made with
respect to a participant, or the equivalent
standard accrual rate for a participant or
group of participants under the collective
bargaining agreements in effect as of the first
day of the initial critical year, or
(B) if lower, the accrual rate under the plan
on such first day.
The equivalent standard accrual rate shall be
determined by the plan sponsor based on the standard or
average contribution base units which the plan sponsor
determines to be representative for active participants
and such other factors as the plan sponsor determines
to be relevant. Nothing in this paragraph shall be
construed as limiting the ability of the plan sponsor
to prepare and provide the bargaining parties with
alternative schedules to the default schedule that
establish lower or higher accrual and contribution
rates than the rates otherwise described in this
paragraph.
(7) Automatic employer surcharge.--
(A) Imposition of surcharge.--Each employer
otherwise obligated to make a contribution for
the initial critical year shall be obligated to
pay to the plan for such year a surcharge equal
to 5 percent of the contribution otherwise
required under the applicable collective
bargaining agreement (or other agreement
pursuant to which the employer contributes).
For each succeeding plan year in which the plan
is in critical status for a consecutive period
of years beginning with the initial critical
year, the surcharge shall be 10 percent of the
contribution otherwise so required.
(B) Enforcement of surcharge.--The surcharges
under subparagraph (A) shall be due and payable
on the same schedule as the contributions on
which the surcharges are based. Any failure to
make a surcharge payment shall be treated as a
delinquent contribution under section 515 of
the Employee Retirement Income Security Act of
1974 and shall be enforceable as such.
(C) Surcharge to terminate upon collective
bargaining agreement renegotiation.--The
surcharge under this paragraph shall cease to
be effective with respect to employees covered
by a collective bargaining agreement (or other
agreement pursuant to which the employer
contributes), beginning on the effective date
of a collective bargaining agreement (or other
such agreement) that includes terms consistent
with a schedule presented by the plan sponsor
under paragraph (1)(B)(i), as modified under
subparagraph (B) of paragraph (3).
(D) Surcharge not to apply until employer
receives notice.--The surcharge under this
paragraph shall not apply to an employer until
30 days after the employer has been notified by
the plan sponsor that the plan is in critical
status and that the surcharge is in effect.
(E) Surcharge not to generate increased
benefit accruals.--Notwithstanding any
provision of a plan to the contrary, the amount
of any surcharge under this paragraph shall not
be the basis for any benefit accrual under the
plan.
(8) Benefit adjustments.--
(A) Adjustable benefits.--
(i) In general.--Notwithstanding
section 411(d)(6), the plan sponsor
shall, subject to the notice
requirement under subparagraph (C),
make any reductions to adjustable
benefits which the plan sponsor deems
appropriate, based upon the outcome of
collective bargaining over the schedule
or schedules provided under paragraph
(1)(B)(i).
(ii) Exception for retirees.--Except
in the case of adjustable benefits
described in clause (iv)(III), the plan
sponsor of a plan in critical status
shall not reduce adjustable benefits of
any participant or beneficiary whose
benefit commencement date is before the
date on which the plan provides notice
to the participant or beneficiary under
subsection (b)(3)(D) for the initial
critical year.
(iii) Plan sponsor flexibility.--The
plan sponsor shall include in the
schedules provided to the bargaining
parties an allowance for funding the
benefits of participants with respect
to whom contributions are not currently
required to be made, and shall reduce
their benefits to the extent permitted
under this title and considered
appropriate by the plan sponsor based
on the plan's then current overall
funding status.
(iv) Adjustable benefit defined.--For
purposes of this paragraph, the term
``adjustable benefit'' means--
(I) benefits, rights, and
features under the plan,
including post-retirement death
benefits, 60-month guarantees,
disability benefits not yet in
pay status, and similar
benefits,
(II) any early retirement
benefit or retirement-type
subsidy (within the meaning of
section 411(d)(6)(B)(i)) and
any benefit payment option
(other than the qualified joint
and survivor annuity), and
(III) benefit increases that
would not be eligible for a
guarantee under section 4022A
of the Employee Retirement
Income Security Act of 1974 on
the first day of initial
critical year because the
increases were adopted (or, if
later, took effect) less than
60 months before such first
day.
(B) Normal retirement benefits protected.--
Except as provided in subparagraph
(A)(iv)(III), nothing in this paragraph shall
be construed to permit a plan to reduce the
level of a participant's accrued benefit
payable at normal retirement age.
(C) Notice requirements.--
(i) In general.--No reduction may be
made to adjustable benefits under
subparagraph (A) unless notice of such
reduction has been given at least 30
days before the general effective date
of such reduction for all participants
and beneficiaries to--
(I) plan participants and
beneficiaries,
(II) each employer who has an
obligation to contribute
(within the meaning of section
4212(a) of the Employee
Retirement Income Security Act
of 1974) under the plan, and
(III) each employee
organization which, for
purposes of collective
bargaining, represents plan
participants employed by such
an employer.
(ii) Content of notice.--The notice
under clause (i) shall contain--
(I) sufficient information to
enable participants and
beneficiaries to understand the
effect of any reduction on
their benefits, including an
estimate (on an annual or
monthly basis) of any affected
adjustable benefit that a
participant or beneficiary
would otherwise have been
eligible for as of the general
effective date described in
clause (i), and
(II) information as to the
rights and remedies of plan
participants and beneficiaries
as well as how to contact the
Department of Labor for further
information and assistance
where appropriate.
(iii) Form and manner.--Any notice
under clause (i)--
(I) shall be provided in a
form and manner prescribed in
regulations of the Secretary,
in consultation with the
Secretary of Labor,
(II) shall be written in a
manner so as to be understood
by the average plan
participant, and
(III) may be provided in
written, electronic, or other
appropriate form to the extent
such form is reasonably
accessible to persons to whom
the notice is required to be
provided.
The Secretary shall in the regulations
prescribed under subclause (I) establish a
model notice that a plan sponsor may use to
meet the requirements of this subparagraph.
(9) Benefit suspensions for multiemployer plans in
critical and declining status.--
(A) In general.--Notwithstanding section
411(d)(6) and subject to subparagraphs (B)
through (I), the plan sponsor of a plan in
critical and declining status may, by plan
amendment, suspend benefits which the sponsor
deems appropriate.
(B) Suspension of benefits.--
(i) Suspension of benefits defined.--
For purposes of this subsection, the
term ``suspension of benefits'' means
the temporary or permanent reduction of
any current or future payment
obligation of the plan to any
participant or beneficiary under the
plan, whether or not in pay status at
the time of the suspension of benefits.
(ii) Length of suspensions.--Any
suspension of benefits made under
subparagraph (A) shall remain in effect
until the earlier of when the plan
sponsor provides benefit improvements
in accordance with subparagraph (E) or
the suspension of benefits expires by
its own terms.
(iii) No liability.--The plan shall
not be liable for any benefit payments
not made as a result of a suspension of
benefits under this paragraph.
(iv) Applicability.--For purposes of
this paragraph, all references to
suspensions of benefits, increases in
benefits, or resumptions of suspended
benefits with respect to participants
shall also apply with respect to
benefits of beneficiaries or
alternative payees of participants.
(v) Retiree representative.--
(I) In general.--In the case
of a plan with 10,000 or more
participants, not later than 60
days prior to the plan sponsor
submitting an application to
suspend benefits, the plan
sponsor shall select a
participant of the plan in pay
status to act as a retiree
representative. The retiree
representative shall advocate
for the interests of the
retired and deferred vested
participants and beneficiaries
of the plan throughout the
suspension approval process.
(II) Reasonable expenses from
plan.--The plan shall provide
for reasonable expenses by the
retiree representative,
including reasonable legal and
actuarial support, commensurate
with the plan's size and funded
status.
(III) Special rule relating
to fiduciary status.--Duties
performed pursuant to subclause
(I) shall not be subject to
section 4975. The preceding
sentence shall not apply to
those duties associated with an
application to suspend benefits
pursuant to subparagraph (G)
that are performed by the
retiree representative who is
also a plan trustee.
(C) Conditions for suspensions.--The plan
sponsor of a plan in critical and declining
status for a plan year may suspend benefits
only if the following conditions are met:
(i) Taking into account the proposed
suspensions of benefits (and, if
applicable, a proposed partition of the
plan under section 4233 of the Employee
Retirement Income Security Act of
1974), the plan actuary certifies that
the plan is projected to avoid
insolvency within the meaning of
section 418E, assuming the suspensions
of benefits continue until the
suspensions of benefits expire by their
own terms or if no such expiration date
is set, indefinitely.
(ii) The plan sponsor determines, in
a written record to be maintained
throughout the period of the benefit
suspension, that the plan is still
projected to become insolvent unless
benefits are suspended under this
paragraph, although all reasonable
measures to avoid insolvency have been
taken (and continue to be taken during
the period of the benefit suspension).
In its determination, the plan sponsor
may take into account factors including
the following:
(I) Current and past
contribution levels.
(II) Levels of benefit
accruals (including any prior
reductions in the rate of
benefit accruals).
(III) Prior reductions (if
any) of adjustable benefits.
(IV) Prior suspensions (if
any) of benefits under this
subsection.
(V) The impact on plan
solvency of the subsidies and
ancillary benefits available to
active participants.
(VI) Compensation levels of
active participants relative to
employees in the participants'
industry generally.
(VII) Competitive and other
economic factors facing
contributing employers.
(VIII) The impact of benefit
and contribution levels on
retaining active participants
and bargaining groups under the
plan.
(IX) The impact of past and
anticipated contribution
increases under the plan on
employer attrition and
retention levels.
(X) Measures undertaken by
the plan sponsor to retain or
attract contributing employers.
(D) Limitations on suspensions.--Any
suspensions of benefits made by a plan sponsor
pursuant to this paragraph shall be subject to
the following limitations:
(i) The monthly benefit of any
participant or beneficiary may not be
reduced below 110 percent of the
monthly benefit which is guaranteed by
the Pension Benefit Guaranty
Corporation under section 4022A of the
Employee Retirement Income Security Act
of 1974 on the date of the suspension.
(ii)(I) In the case of a participant
or beneficiary who has attained 75
years of age as of the effective date
of the suspension, not more than the
applicable percentage of the maximum
suspendable benefits of such
participant or beneficiary may be
suspended under this paragraph.
(II) For purposes of subclause (I),
the maximum suspendable benefits of a
participant or beneficiary is the
portion of the benefits of such
participant or beneficiary that would
be suspended pursuant to this paragraph
without regard to this clause;
(III) For purposes of subclause (I),
the applicable percentage is a
percentage equal to the quotient
obtained by dividing--
(aa) the number of months
during the period beginning
with the month after the month
in which occurs the effective
date of the suspension and
ending with the month during
which the participant or
beneficiary attains the age of
80, by
(bb) 60 months.
(iii) No benefits based on disability
(as defined under the plan) may be
suspended under this paragraph.
(iv) Any suspensions of benefits, in
the aggregate (and, if applicable,
considered in combination with a
partition of the plan under section
4233 of the Employee Retirement Income
Security Act of 1974), shall be
reasonably estimated to achieve, but
not materially exceed, the level that
is necessary to avoid insolvency.
(v) In any case in which a suspension
of benefits with respect to a plan is
made in combination with a partition of
the plan under section 4233 of the
Employee Retirement Income Security Act
of 1974, the suspension of benefits may
not take effect prior to the effective
date of such partition.
(vi) Any suspensions of benefits
shall be equitably distributed across
the participant and beneficiary
population, taking into account
factors, with respect to participants
and beneficiaries and their benefits,
that may include one or more of the
following:
(I) Age and life expectancy.
(II) Length of time in pay
status.
(III) Amount of benefit.
(IV) Type of benefit:
survivor, normal retirement,
early retirement.
(V) Extent to which
participant or beneficiary is
receiving a subsidized benefit.
(VI) Extent to which
participant or beneficiary has
received post-retirement
benefit increases.
(VII) History of benefit
increases and reductions.
(VIII) Years to retirement
for active employees.
(IX) Any discrepancies
between active and retiree
benefits.
(X) Extent to which active
participants are reasonably
likely to withdraw support for
the plan, accelerating employer
withdrawals from the plan and
increasing the risk of
additional benefit reductions
for participants in and out of
pay status.
(XI) Extent to which benefits
are attributed to service with
an employer that failed to pay
its full withdrawal liability.
(vii) In the case of a plan that
includes the benefits described in
clause (III), benefits suspended under
this paragraph shall--
(I) first, be applied to the
maximum extent permissible to
benefits attributable to a
participant's service for an
employer which withdrew from
the plan and failed to pay (or
is delinquent with respect to
paying) the full amount of its
withdrawal liability under
section 4201(b)(1) of the
Employee Retirement Income
Security Act of 1974 or an
agreement with the plan,
(II) second, except as
provided by subclause (III), be
applied to all other benefits
that may be suspended under
this paragraph, and
(III) third, be applied to
benefits under a plan that are
directly attributable to a
participant's service with any
employer which has, prior to
the date of enactment of the
Multiemployer Pension Reform
Act of 2014--
(aa) withdrawn from
the plan in a complete
withdrawal under
section 4203 of the
Employee Retirement
Income Security Act of
1974 and has paid the
full amount of the
employer's withdrawal
liability under section
4201(b)(1) of such Act
or an agreement with
the plan, and
(bb) pursuant to a
collective bargaining
agreement, assumed
liability for providing
benefits to
participants and
beneficiaries of the
plan under a separate,
single-employer plan
sponsored by the
employer, in an amount
equal to any amount of
benefits for such
participants and
beneficiaries reduced
as a result of the
financial status of the
plan.
(E) Benefit improvements.--
(i) In general.--The plan sponsor
may, in its sole discretion, provide
benefit improvements while any
suspension of benefits under the plan
remains in effect, except that the plan
sponsor may not increase the
liabilities of the plan by reason of
any benefit improvement for any
participant or beneficiary not in pay
status by the first day of the plan
year for which the benefit improvement
takes effect, unless--
(I) such action is
accompanied by equitable
benefit improvements in
accordance with clause (ii) for
all participants and
beneficiaries whose benefit
commencement dates were before
the first day of the plan year
for which the benefit
improvement for such
participant or beneficiary not
in pay status took effect; and
(II) the plan actuary
certifies that after taking
into account such benefits
improvements the plan is
projected to avoid insolvency
indefinitely under section
418E.
(ii) Equitable distribution of
benefit improvements.--
(I) Limitation.--The
projected value of the total
liabilities for benefit
improvements for participants
and beneficiaries not in pay
status by the date of the first
day of the plan year in which
the benefit improvements are
proposed to take effect, as
determined as of such date, may
not exceed the projected value
of the liabilities arising from
benefit improvements for
participants and beneficiaries
with benefit commencement dates
prior to the first day of such
plan year, as so determined.
(II) Equitable distribution
of benefits.--The plan sponsor
shall equitably distribute any
increase in total liabilities
for benefit improvements in
clause (i) to some or all of
the participants and
beneficiaries whose benefit
commencement date is before the
date of the first day of the
plan year in which the benefit
improvements are proposed to
take effect, taking into
account the relevant factors
described in subparagraph
(D)(vi) and the extent to which
the benefits of the
participants and beneficiaries
were suspended.
(iii) Special rule for resumptions of
benefits only for participants in pay
status.--The plan sponsor may increase
liabilities of the plan through a
resumption of benefits for participants
and beneficiaries in pay status only if
the plan sponsor equitably distributes
the value of resumed benefits to some
or all of the participants and
beneficiaries in pay status, taking
into account the relevant factors
described in subparagraph (D)(vi).
(iv) Special rule for certain benefit
increases.--This subparagraph shall not
apply to a resumption of suspended
benefits or plan amendment which
increases liabilities with respect to
participants and beneficiaries not in
pay status by the first day of the plan
year in which the benefit improvements
took effect which--
(I) the Secretary of the
Treasury, in consultation with
the Pension Benefit Guaranty
Corporation and the Secretary
of Labor, determines to be
reasonable and which provides
for only de minimis increases
in the liabilities of the plan,
or
(II) is required as a
condition of qualification
under part I of subchapter D of
chapter 1 of subtitle A or to
comply with other applicable
law, as determined by the
Secretary of the Treasury.
(v) Additional limitations.--Except
for resumptions of suspended benefits
described in clause (iii), the
limitations on benefit improvements
while a suspension of benefits is in
effect under this paragraph shall be in
addition to any other applicable
limitations on increases in benefits
imposed on a plan.
(vi) Definition of benefit
improvement.--For purposes of this
subparagraph, the term ``benefit
improvement'' means, with respect to a
plan, a resumption of suspended
benefits, an increase in benefits, an
increase in the rate at which benefits
accrue, or an increase in the rate at
which benefits become nonforfeitable
under the plan.
(F) Notice requirements.--
(i) In general.--No suspension of
benefits may be made pursuant to this
paragraph unless notice of such
proposed suspension has been given by
the plan sponsor concurrently with an
application for approval of such
suspension submitted under subparagraph
(G) to the Secretary of the Treasury
to--
(I) such plan participants
and beneficiaries who may be
contacted by reasonable
efforts,
(II) each employer who has an
obligation to contribute
(within the meaning of section
4212(a) of the Employee
Retirement Income Security Act
of 1974) under the plan, and
(III) each employee
organization which, for
purposes of collective
bargaining, represents plan
participants employed by such
an employer.
(ii) Content of notice.--The notice
under clause (i) shall contain--
(I) sufficient information to
enable participants and
beneficiaries to understand the
effect of any suspensions of
benefits, including an
individualized estimate (on an
annual or monthly basis) of
such effect on each participant
or beneficiary,
(II) a description of the
factors considered by the plan
sponsor in designing the
benefit suspensions,
(III) a statement that the
application for approval of any
suspension of benefits shall be
available on the website of the
Department of the Treasury and
that comments on such
application will be accepted,
(IV) information as to the
rights and remedies of plan
participants and beneficiaries,
(V) if applicable, a
statement describing the
appointment of a retiree
representative, the date of
appointment of such
representative, identifying
information about the retiree
representative (including
whether the representative is a
plan trustee), and how to
contact such representative,
and
(VI) information on how to
contact the Department of the
Treasury for further
information and assistance
where appropriate.
(iii) Form and manner.--Any notice
under clause (i)--
(I) shall be provided in a
form and manner prescribed in
guidance by the Secretary of
the Treasury, in consultation
with the Pension Benefit
Guaranty Corporation and the
Secretary of Labor,
notwithstanding any other
provision of law,
(II) shall be written in a
manner so as to be understood
by the average plan
participant, and
(III) may be provided in
written, electronic, or other
appropriate form to the extent
such form is reasonably
accessible to persons to whom
the notice is required to be
provided.
(iv) Other notice requirement.--Any
notice provided under clause (i) shall
fulfill the requirement for notice of a
significant reduction in benefits
described in section 4980F.
(v) Model notice.--The Secretary of
the Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, shall in
the guidance prescribed under clause
(iii)(I) establish a model notice that
a plan sponsor may use to meet the
requirements of this subparagraph.
(G) Approval process by the secretary of the
treasury in consultation with the pension
benefit guaranty corporation and the secretary
of labor.--
(i) In general.--The plan sponsor of
a plan in critical and declining status
for a plan year that seeks to suspend
benefits must submit an application to
the Secretary of the Treasury for
approval of the suspensions of
benefits. If the plan sponsor submits
an application for approval of the
suspensions, the Secretary of the
Treasury shall approve, in consultation
with the Pension Benefit Guaranty
Corporation and the Secretary of Labor,
the application upon finding that the
plan is eligible for the suspensions
and has satisfied the criteria of
subparagraphs (C), (D), (E), and (F).
(ii) Solicitation of comments.--Not
later than 30 days after receipt of the
application under clause (i), the
Secretary of the Treasury, in
consultation with the Pension Benefit
Guaranty Corporation and the Secretary
of Labor, shall publish a notice in the
Federal Register soliciting comments
from contributing employers, employee
organizations, and participants and
beneficiaries of the plan for which an
application was made and other
interested parties. The application for
approval of the suspension of benefits
shall be published on the website of
the Department of the Treasury.
(iii) Required action; deemed
approval.--The Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, shall
approve or deny any application for
suspensions of benefits under this
paragraph within 225 days after the
submission of such application. An
application for suspension of benefits
shall be deemed approved unless, within
such 225 days, the Secretary of the
Treasury notifies the plan sponsor that
it has failed to satisfy one or more of
the criteria described in this
paragraph. If the Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, rejects a
plan sponsor's application, the
Secretary of the Treasury shall provide
notice to the plan sponsor detailing
the specific reasons for the rejection,
including reference to the specific
requirement not satisfied. Approval or
denial by the Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, of an
application shall be treated as final
agency action for purposes of section
704 of title 5, United States Code.
(iv) Agency review.--In evaluating
whether the plan sponsor has met the
criteria specified in clause (ii) of
subparagraph (C), the Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, shall
review the plan sponsor's consideration
of factors under such clause.
(v) Standard for accepting plan
sponsor determinations.--In evaluating
the plan sponsor's application, the
Secretary of the Treasury shall accept
the plan sponsor's determinations
unless it concludes, in consultation
with the Pension Benefit Guaranty
Corporation and the Secretary of Labor,
that the plan sponsor's determinations
were clearly erroneous.
(H) Participant ratification process.--
(i) In general.--No suspension of
benefits may take effect pursuant to
this paragraph prior to a vote of the
participants of the plan with respect
to the suspension.
(ii) Administration of vote.--Not
later than 30 days after approval of
the suspension by the Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, under
subparagraph (G), the Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, shall
administer a vote of participants and
beneficiaries of the plan. Except as
provided in clause (v), the suspension
shall go into effect following the vote
unless a majority of all participants
and beneficiaries of the plan vote to
reject the suspension. The plan sponsor
may submit a new suspension application
to the Secretary of the Treasury for
approval in any case in which a
suspension is prohibited from taking
effect pursuant to a vote under this
subparagraph.
(iii) Ballots.--The plan sponsor
shall provide a ballot for the vote
(subject to approval by the Secretary
of the Treasury, in consultation with
the Pension Benefit Guaranty
Corporation and the Secretary of Labor)
that includes the following:
(I) A statement from the plan
sponsor in support of the
suspension.
(II) A statement in
opposition to the suspension
compiled from comments received
pursuant to subparagraph
(G)(ii).
(III) A statement that the
suspension has been approved by
the Secretary of the Treasury,
in consultation with the
Pension Benefit Guaranty
Corporation and the Secretary
of Labor.
(IV) A statement that the
plan sponsor has determined
that the plan will become
insolvent unless the suspension
takes effect.
(V) A statement that
insolvency of the plan could
result in benefits lower than
benefits paid under the
suspension.
(VI) A statement that
insolvency of the Pension
Benefit Guaranty Corporation
would result in benefits lower
than benefits paid in the case
of plan insolvency.
(iv) Communication by plan sponsor.--
It is the sense of Congress that,
depending on the size and resources of
the plan and geographic distribution of
the plan's participants, the plan
sponsor should take such steps as may
be necessary to inform participants
about proposed benefit suspensions
through in-person meetings, telephone
or internet-based communications,
mailed information, or by other means.
(v) Systemically important plans.--
(I) In general.--Not later
than 14 days after a vote under
this subparagraph rejecting a
suspension, the Secretary of
the Treasury, in consultation
with the Pension Benefit
Guaranty Corporation and the
Secretary of Labor, shall
determine whether the plan is a
systemically important plan. If
the Secretary of the Treasury,
in consultation with the
Pension Benefit Guaranty
Corporation and the Secretary
of Labor, determines that the
plan is a systemically
important plan, not later than
the end of the 90-day period
beginning on the date the
results of the vote are
certified, the Secretary of the
Treasury shall, notwithstanding
such adverse vote--
(aa) permit the
implementation of the
suspension proposed by
the plan sponsor; or
(bb) permit the
implementation of a
modification by the
Secretary of the
Treasury, in
consultation with the
Pension Benefit
Guaranty Corporation
and the Secretary of
Labor, of such
suspension (so long as
the plan is projected
to avoid insolvency
within the meaning of
section 4245 of the
Employee Retirement
Income Security Act of
1974 under such
modification).
(II) Recommendations.--Not
later than 30 days after a
determination by the Secretary
of the Treasury, in
consultation with the Pension
Benefit Guaranty Corporation
and the Secretary of Labor,
that the plan is systemically
important, the Participant and
Plan Sponsor Advocate selected
under section 4004 of the
Employee Retirement Income
Security Act of 1974 may submit
recommendations to the
Secretary of the Treasury with
respect to the suspension or
any revisions to the
suspension.
(III) Systemically important
plan defined.--
(aa) In general.--For
purposes of this
subparagraph, a
systemically important
plan is a plan with
respect to which the
Pension Benefit
Guaranty Corporation
projects the present
value of projected
financial assistance
payments exceeds
$1,000,000,000 if
suspensions are not
implemented.
(bb) Indexing.--For
calendar years
beginning after 2015,
there shall be
substituted for the
dollar amount specified
in item (aa) an amount
equal to the product of
such dollar amount and
a fraction, the
numerator of which is
the contribution and
benefit base
(determined under
section 230 of the
Social Security Act)
for the preceding
calendar year and the
denominator of which is
such contribution and
benefit base for
calendar year 2014. If
the amount otherwise
determined under this
item is not a multiple
of $1,000,000, such
amount shall be rounded
to the next lowest
multiple of $1,000,000.
(vi) Final authorization to
suspend.--In any case in which a
suspension goes into effect following a
vote pursuant to clause (ii) (or
following a determination under clause
(v) that the plan is a systemically
important plan), the Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, shall issue
a final authorization to suspend with
respect to the suspension not later
than 7 days after such vote (or, in the
case of a suspension that goes into
effect under clause (v), at a time
sufficient to allow the implementation
of the suspension prior to the end of
the 90-day period described in clause
(v)(I)).
(I) Judicial review.--
(i) Denial of application.--An action
by the plan sponsor challenging the
denial of an application for suspension
of benefits by the Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, may only be
brought following such denial.
(ii) Approval of suspension of
benefits.--
(I) Timing of action.--An
action challenging a suspension
of benefits under this
paragraph may only be brought
following a final authorization
to suspend by the Secretary of
the Treasury, in consultation
with the Pension Benefit
Guaranty Corporation and the
Secretary of Labor, under
subparagraph (H)(vi).
(II) Standards of review.--
(aa) In general.--A
court shall review an
action challenging a
suspension of benefits
under this paragraph in
accordance with section
706 of title 5, United
States Code.
(bb) Temporary
injunction.--A court
reviewing an action
challenging a
suspension of benefits
under this paragraph
may not grant a
temporary injunction
with respect to such
suspension unless the
court finds a clear and
convincing likelihood
that the plaintiff will
prevail on the merits
of the case.
(iii) Restricted cause of action.--A
participant or beneficiary affected by
a benefit suspension under this
paragraph shall not have a cause of
action under this title.
(iv) Limitation on action to suspend
benefits.--No action challenging a
suspension of benefits following the
final authorization to suspend or the
denial of an application for suspension
of benefits pursuant to this paragraph
may be brought after one year after the
earliest date on which the plaintiff
acquired or should have acquired actual
knowledge of the existence of such
cause of action.
(J) Special rule for emergence from critical
status.--A plan certified to be in critical and
declining status pursuant to projections made
under subsection (b)(3) for which a suspension
of benefits has been made by the plan sponsor
pursuant to this paragraph shall not emerge
from critical status under paragraph (4)(B),
until such time as--
(i) the plan is no longer certified
to be in critical or endangered status
under paragraphs (1) and (2) of
subsection (b), and
(ii) the plan is projected to avoid
insolvency under section 418E.
(f) Rules for operation of plan during adoption and
rehabilitation period.--
(1) Compliance with rehabilitation plan.--
(A) In general.--A plan may not be amended
after the date of the adoption of a
rehabilitation plan under subsection (e) so as
to be inconsistent with the rehabilitation
plan.
(B) Special rules for benefit increases.--A
plan may not be amended after the date of the
adoption of a rehabilitation plan under
subsection (e) so as to increase benefits,
including future benefit accruals, unless the
plan actuary certifies that such increase is
paid for out of additional contributions not
contemplated by the rehabilitation plan, and,
after taking into account the benefit increase,
the multiemployer plan still is reasonably
expected to emerge from critical status by the
end of the rehabilitation period on the
schedule contemplated in the rehabilitation
plan.
(2) Restriction on lump sums and similar benefits.--
(A) In general.--Effective on the date the
notice of certification of the plan's critical
status for the initial critical year under
subsection (b)(3)(D) is sent, and
notwithstanding section 411(d)(6), the plan
shall not pay--
(i) any payment, in excess of the
monthly amount paid under a single life
annuity (plus any social security
supplements described in the last
sentence of section 411(a)(9)), to a
participant or beneficiary whose
annuity starting date (as defined in
section 417(f)(2)) occurs after the
date such notice is sent,
(ii) any payment for the purchase of
an irrevocable commitment from an
insurer to pay benefits, and
(iii) any other payment specified by
the Secretary by regulations.
(B) Exception.--Subparagraph (A) shall not
apply to a benefit which under section
411(a)(11) may be immediately distributed
without the consent of the participant or to
any makeup payment in the case of a retroactive
annuity starting date or any similar payment of
benefits owed with respect to a prior period.
(3) Special rules for plan adoption period.--During
the period beginning on the date of the certification
under subsection (b)(3)(A) for the initial critical
year and ending on the date of the adoption of a
rehabilitation plan--
(A) the plan sponsor may not accept a
collective bargaining agreement or
participation agreement with respect to the
multiemployer plan that provides for--
(i) a reduction in the level of
contributions for any participants,
(ii) a suspension of contributions
with respect to any period of service,
or
(iii) any new direct or indirect
exclusion of younger or newly hired
employees from plan participation, and
(B) no amendment of the plan which increases
the liabilities of the plan by reason of any
increase in benefits, any change in the accrual
of benefits, or any change in the rate at which
benefits become nonforfeitable under the plan
may be adopted unless the amendment is required
as a condition of qualification under part I of
subchapter D of chapter 1 or to comply with
other applicable law.
(g) Adjustments disregarded in withdrawal liability
determination.--
(1) Benefit reduction.--Any benefit reductions under
subsection (e)(8) or (f), or benefit reductions or
suspensions while in critical and declining status
under subsection (e)(9), unless the withdrawal occurs
more than ten years after the effective date of a
benefit suspension by a plan in critical and declining
status, shall be disregarded in determining a plan's
unfunded vested benefits for purposes of determining an
employer's withdrawal liability under section 4201 of
the Employee Retirement Income Security Act of 1974.
(2) Surcharges.--Any surcharges under subsection
(e)(7) shall be disregarded in determining the
allocation of unfunded vested benefits to an employer
under section 4211 of the Employee Retirement Income
Security Act of 1974 and in determining the highest
contribution rate under section 4219(c) of such Act,
except for purposes of determining the unfunded vested
benefits attributable to an employer under section
4211(c)(4) of such Act or a comparable method approved
under section 4211(c)(5) of such Act.
(3) Contribution increases required by funding
improvement or rehabilitation plan.--
(A) In general.--Any increase in the
contribution rate (or other increase in
contribution requirements unless due to
increased levels of work, employment, or
periods for which compensation is provided)
that is required or made in order to enable the
plan to meet the requirement of the funding
improvement plan or rehabilitation plan shall
be disregarded in determining the allocation of
unfunded vested benefits to an employer under
section 4211 of such Act and in determining the
highest contribution rate under section 4219(c)
of such Act, except for purposes of determining
the unfunded vested benefits attributable to an
employer under section 4211(c)(4) of such Act
or a comparable method approved under section
4211(c)(5) of such Act.
(B) Special rules.--For purposes of this
paragraph, any increase in the contribution
rate (or other increase in contribution
requirements) shall be deemed to be required or
made in order to enable the plan to meet the
requirement of the funding improvement plan or
rehabilitation plan except for increases in
contribution requirements due to increased
levels of work, employment, or periods for
which compensation is provided or additional
contributions are used to provide an increase
in benefits, including an increase in future
benefit accruals, permitted by subsection
(d)(1)(B) or (f)(1)(B).
(4) Emergence from endangered or critical status.--In
the case of increases in the contribution rate (or
other increases in contribution requirements unless due
to increased levels of work, employment, or periods for
which compensation is provided) disregarded pursuant to
paragraph (3), this subsection shall cease to apply as
of the expiration date of the collective bargaining
agreement in effect when the plan emerges from
endangered or critical status. Notwithstanding the
preceding sentence, once the plan emerges from critical
or endangered status, increases in the contribution
rate disregarded pursuant to paragraph (3) shall
continue to be disregarded in determining the highest
contribution rate under section 4219(c) of such Act for
plan years during which the plan was in endangered or
critical status.
(5) Simplified calculations.--The Pension Benefit
Guaranty Corporation shall prescribe simplified methods
for the application of this subsection in determining
withdrawal liability and payment amounts under section
4219(c) of such Act.
(h) Expedited resolution of plan sponsor decisions.--If,
within 60 days of the due date for adoption of a funding
improvement plan under subsection (c) or a rehabilitation plan
under subsection (e), the plan sponsor of a plan in endangered
status or a plan in critical status has not agreed on a funding
improvement plan or rehabilitation plan, then any member of the
board or group that constitutes the plan sponsor may require
that the plan sponsor enter into an expedited dispute
resolution procedure for the development and adoption of a
funding improvement plan or rehabilitation plan.
(i) Nonbargained participation.--
(1) Both bargained and nonbargained employee-
participants.--In the case of an employer that
contributes to a multiemployer plan with respect to
both employees who are covered by one or more
collective bargaining agreements and employees who are
not so covered, if the plan is in endangered status or
in critical status, benefits of and contributions for
the nonbargained employees, including surcharges on
those contributions, shall be determined as if those
nonbargained employees were covered under the first to
expire of the employer's collective bargaining
agreements in effect when the plan entered endangered
or critical status.
(2) Nonbargained employees only.--In the case of an
employer that contributes to a multiemployer plan only
with respect to employees who are not covered by a
collective bargaining agreement, this section shall be
applied as if the employer were the bargaining party,
and its participation agreement with the plan were a
collective bargaining agreement with a term ending on
the first day of the plan year beginning after the
employer is provided the schedule or schedules
described in subsections (c) and (e).
(j) Definitions; actuarial method.--For purposes of this
section--
(1) Bargaining party.--The term ``bargaining party''
means--
(A)(i) except as provided in clause (ii), an
employer who has an obligation to contribute
under the plan; or
(ii) in the case of a plan described under
section 404(c), or a continuation of such a
plan, the association of employers that is the
employer settlor of the plan; and
(B) an employee organization which, for
purposes of collective bargaining, represents
plan participants employed by an employer who
has an obligation to contribute under the plan.
(2) Funded percentage.--The term ``funded
percentage'' means the percentage equal to a fraction--
(A) the numerator of which is the value of
the plan's assets, as determined under section
431(c)(2), and
(B) the denominator of which is the accrued
liability of the plan, determined using
actuarial assumptions described in section
431(c)(3).
(3) Accumulated funding deficiency.--The term
``accumulated funding deficiency'' has the meaning
given such term in section 431(a).
(4) Active participant.--The term ``active
participant'' means, in connection with a multiemployer
plan, a participant who is in covered service under the
plan.
(5) Inactive participant.--The term ``inactive
participant'' means, in connection with a multiemployer
plan, a participant, or the beneficiary or alternate
payee of a participant, who--
(A) is not in covered service under the plan,
and
(B) is in pay status under the plan or has a
nonforfeitable right to benefits under the
plan.
(6) Pay status.--A person is in pay status under a
multiemployer plan if--
(A) at any time during the current plan year,
such person is a participant or beneficiary
under the plan and is paid an early, late,
normal, or disability retirement benefit under
the plan (or a death benefit under the plan
related to a retirement benefit), or
(B) to the extent provided in regulations of
the Secretary, such person is entitled to such
a benefit under the plan.
(7) Obligation to contribute.--The term ``obligation
to contribute'' has the meaning given such term under
section 4212(a) of the Employee Retirement Income
Security Act of 1974.
(8) Actuarial method.--Notwithstanding any other
provision of this section, the actuary's determinations
with respect to a plan's normal cost, actuarial accrued
liability, and improvements in a plan's funded
percentage under this section shall be based upon the
unit credit funding method (whether or not that method
is used for the plan's actuarial valuation).
(9) Plan sponsor.--For purposes of this section,
section 431, and section 4971(g):
(A) In general.--The term ``plan sponsor''
means, with respect to any multiemployer plan,
the association, committee, joint board of
trustees, or other similar group of
representatives of the parties who establish or
maintain the plan.
(B) Special rule for section 404(c) plans.--
In the case of a plan described in section
404(c) (or a continuation of such plan), such
term means the bargaining parties described in
paragraph (1).
(10) Benefit commencement date.--The term ``benefit
commencement date'' means the annuity starting date (or
in the case of a retroactive annuity starting date, the
date on which benefit payments begin).
(k) Special Rules for Plans Receiving Pension Rehabilitation
Loans.--
(1) Determination of withdrawal liability.--
(A) In general.--If any employer
participating in a plan at the time the plan
receives a loan under section 4(a) of the
Rehabilitation for Multiemployer Pensions Act
of 2019 withdraws from the plan before the end
of the 30-year period beginning on the date of
the loan, the withdrawal liability of such
employer shall be determined under the Employee
Retirement Income Security Act of 1974--
(i) by applying section 4219(c)(1)(D)
of the Employee Retirement Income
Security Act of 1974 as if the plan
were terminating by the withdrawal of
every employer from the plan, and
(ii) by determining the value of
nonforfeitable benefits under the plan
at the time of the deemed termination
by using the interest assumptions
prescribed for purposes of section 4044
of the Employee Retirement Income
Security Act of 1974, as prescribed in
the regulations under section 4281 of
the Employee Retirement Income Security
Act of 1974 in the case of such a mass
withdrawal.
(B) Annuity contracts and investment
portfolios purchased with loan funds.--Annuity
contracts purchased and portfolios implemented
under section 4(d)(3) of the Rehabilitation for
Multiemployer Pensions Act of 2019 shall not be
taken into account in determining the
withdrawal liability of any employer under
subparagraph (A), but the amount equal to the
greater of--
(i) the benefits provided under such
contracts or portfolios to participants
and beneficiaries, or
(ii) the remaining payments due on
the loan under section 4(a) of such
Act,
shall be so taken into account.
(2) Coordination with funding requirements.--In the
case of a plan which receives a loan under section 4(a)
of the Rehabilitation for Multiemployer Pensions Act of
2019--
(A) annuity contracts purchased and
portfolios implemented under section 4(d)(3) of
such Act, and the benefits provided to
participants and beneficiaries under such
contracts or portfolios, shall not be taken
into account in determining minimum required
contributions under section 412,
(B) payments on the interest and principal
under the loan, and any benefits owed in excess
of those provided under such contracts or
portfolios, shall be taken into account as
liabilities for purposes of such section, and
(C) if such a portfolio is projected due to
unfavorable investment or actuarial experience
to be unable to fully satisfy the liabilities
which it covers, the amount of the liabilities
projected to be unsatisfied shall be taken into
account as liabilities for purposes of such
section.
* * * * * * *
Subchapter F--EXEMPT ORGANIZATIONS
* * * * * * *
PART III--TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT ORGANIZATIONS
* * * * * * *
SEC. 514. UNRELATED DEBT-FINANCED INCOME.
(a) Unrelated debt-financed income and deductions.--In
computing under section 512 the unrelated business taxable
income for any taxable year--
(1) Percentage of income taken into account.--There
shall be included with respect to each debt-financed
property as an item of gross income derived from an
unrelated trade or business an amount which is the same
percentage (but not in excess of 100 percent) of the
total gross income derived during the taxable year from
or on account of such property as (A) the average
acquisition indebtedness (as defined in subsection
(c)(7)) for the taxable year with respect to the
property is of (B) the average amount (determined under
regulations prescribed by the Secretary) of the
adjusted basis of such property during the period it is
held by the organization during such taxable year.
(2) Percentage of deductions taken into account.--
There shall be allowed as a deduction with respect to
each debt-financed property an amount determined by
applying (except as provided in the last sentence of
this paragraph) the percentage derived under paragraph
(1) to the sum determined under paragraph (3). The
percentage derived under this paragraph shall not be
applied with respect to the deduction of any capital
loss resulting from the carryback or carryover of net
capital losses under section 1212.
(3) Deductions allowable.--The sum referred to in
paragraph (2) is the sum of the deductions under this
chapter which are directly connected with the debt-
financed property or the income therefrom, except that
if the debt-financed property is of a character which
is subject to the allowance for depreciation provided
in section 167, the allowance shall be computed only by
use of the straight-line method.
(b) Definition of debt-financed property.--
(1) In general.--For purposes of this section, the
term ``debt-financed property'' means any property
which is held to produce income and with respect to
which there is an acquisition indebtedness (as defined
in subsection (c)) at any time during the taxable year
(or, if the property was disposed of during the taxable
year, with respect to which there was an acquisition
indebtedness at any time during the 12-month period
ending with the date of such disposition), except that
such term does not include--
(A)(i) any property substantially all the use
of which is substantially related (aside from
the need of the organization for income or
funds) to the exercise or performance by such
organization of its charitable, educational, or
other purpose or function constituting the
basis for its exemption under section 501 (or,
in the case of an organization described in
section 511(a)(2)(B), to the exercise or
performance of any purpose or function
designated in section 501(c)(3)), or (ii) any
property to which clause (i) does not apply, to
the extent that its use is so substantially
related;
(B) except in the case of income excluded
under section 512(b)(5), any property to the
extent that the income from such property is
taken into account in computing the gross
income of any unrelated trade or business;
(C) any property to the extent that the
income from such property is excluded by reason
of the provisions of paragraph (7), (8), or (9)
of section 512(b) in computing the gross income
of any unrelated trade or business;
(D) any property to the extent that it is
used in any trade or business described in
paragraph (1), (2), or (3) of section 513(a);
or
(E) any property the gain or loss from the
sale, exchange, or other disposition of which
would be excluded by reason of the provisions
of section 512(b)(19) in computing the gross
income of any unrelated trade or business.
For purposes of subparagraph (A), substantially all the
use of a property shall be considered to be
substantially related to the exercise or performance by
an organization of its charitable, educational, or
other purpose or function constituting the basis for
its exemption under section 501 if such property is
real property subject to a lease to a medical clinic
entered into primarily for purposes which are
substantially related (aside from the need of such
organization for income or funds or the use it makes of
the rents derived) to the exercise or performance by
such organization of its charitable, educational, or
other purpose or function constituting the basis for
its exemption under section 501.
(2) Special rule for related uses.--For purposes of
applying paragraphs (1) (A), (C), and (D), the use of
any property by an exempt organization which is related
to an organization shall be treated as use by such
organization.
(3) Special rules when land is acquired for exempt
use within 10 years.--
(A) Neighborhood land.--If an organization
acquires real property for the principal
purpose of using the land (commencing within 10
years of the time of acquisition) in the manner
described in paragraph (1)(A) and at the time
of acquisition the property is in the
neighborhood of other property owned by the
organization which is used in such manner, the
real property acquired for such future use
shall not be treated as debt-financed property
so long as the organization does not abandon
its intent to so use the land within the 10-
year period. The preceding sentence shall not
apply for any period after the expiration of
the 10-year period, and shall apply after the
first 5 years of the 10-year period only if the
organization establishes to the satisfaction of
the Secretary that it is reasonably certain
that the land will be used in the described
manner before the expiration of the 10-year
period.
(B) Other cases.--If the first sentence of
subparagraph (A) is inapplicable only because--
(i) the acquired land is not in the
neighborhood referred to in
subparagraph (A), or
(ii) the organization (for the period
after the first 5 years of the 10-year
period) is unable to establish to the
satisfaction of the Secretary that it
is reasonably certain that the land
will be used in the manner described in
paragraph (1)(A) before the expiration
of the 10-year period,
but the land is converted to such use by the
organization within the 10-year period, the
real property (subject to the provisions of
subparagraph (D)) shall not be treated as debt-
financed property for any period before such
conversion. For purposes of this subparagraph,
land shall not be treated as used in the manner
described in paragraph (1)(A) by reason of the
use made of any structure which was on the land
when acquired by the organization.
(C) Limitations.--Subparagraphs (A) and (B)--
(i) shall apply with respect to any
structure on the land when acquired by
the organization, or to the land
occupied by the structure, only if (and
so long as) the intended future use of
the land in the manner described in
paragraph (1)(A) requires that the
structure be demolished or removed in
order to use the land in such manner;
(ii) shall not apply to structures
erected on the land after the
acquisition of the land; and
(iii) shall not apply to property
subject to a lease which is a business
lease (as defined in this section
immediately before the enactment of the
Tax Reform Act of 1976).
(D) Refund of taxes when subparagraph (B)
applies.--If an organization for any taxable
year has not used land in the manner to satisfy
the actual use condition of subparagraph (B)
before the time prescribed by law (including
extensions thereof) for filing the return for
such taxable year, the tax for such year shall
be computed without regard to the application
of subparagraph (B), but if and when such use
condition is satisfied, the provisions of
subparagraph (B) shall then be applied to such
taxable year. If the actual use condition of
subparagraph (B) is satisfied for any taxable
year after such time for filing the return, and
if credit or refund of any overpayment for the
taxable year resulting from the satisfaction of
such use condition is prevented at the close of
the taxable year in which the use condition is
satisfied, by the operation of any law or rule
of law (other than chapter 74, relating to
closing agreements and compromises), credit or
refund of such overpayment may nevertheless be
allowed or made if claim therefor is filed
before the expiration of 1 year after the close
of the taxable year in which the use condition
is satisfied.
(E) Special rule for churches.--In applying
this paragraph to a church or convention or
association of churches, in lieu of the 10-year
period referred to in subparagraphs (A) and (B)
a 15-year period shall be applied, and
subparagraphs (A) and (B)(ii) shall apply
whether or not the acquired land meets the
neighborhood test.
(c) Acquisition indebtedness.--
(1) General rule.--For purposes of this section, the
term ``acquisition indebtedness'' means, with respect
to any debt-financed property, the unpaid amount of--
(A) the indebtedness incurred by the
organization in acquiring or improving such
property;
(B) the indebtedness incurred before the
acquisition or improvement of such property if
such indebtedness would not have been incurred
but for such acquisition or improvement; and
(C) the indebtedness incurred after the
acquisition or improvement of such property if
such indebtedness would not have been incurred
but for such acquisition or improvement and the
incurrence of such indebtedness was reasonably
foreseeable at the time of such acquisition or
improvement.
(2) Property acquired subject to mortgage, etc..--For
purposes of this subsection--
(A) General rule.--Where property (no matter
how acquired) is acquired subject to a mortgage
or other similar lien, the amount of the
indebtedness secured by such mortgage or lien
shall be considered as an indebtedness of the
organization incurred in acquiring such
property even though the organization did not
assume or agree to pay such indebtedness.
(B) Exceptions.--Where property subject to a
mortgage is acquired by an organization by
bequest or devise, the indebtedness secured by
the mortgage shall not be treated as
acquisition indebtedness during a period of 10
years following the date of the acquisition. If
an organization acquires property by gift
subject to a mortgage which was placed on the
property more than 5 years before the gift,
which property was held by the donor more than
5 years before the gift, the indebtedness
secured by such mortgage shall not be treated
as acquisition indebtedness during a period of
10 years following the date of such gift. This
subparagraph shall not apply if the
organization, in order to acquire the equity in
the property by bequest, devise, or gift,
assumes and agrees to pay the indebtedness
secured by the mortgage, or if the organization
makes any payment for the equity in the
property owned by the decedent or the donor.
(C) Liens for taxes or assessments.--Where
State law provides that--
(i) a lien for taxes, or
(ii) a lien for assessments,
made by a State or a political subdivision
thereof attaches to property prior to the time
when such taxes or assessments become due and
payable, then such lien shall be treated as
similar to a mortgage (within the meaning of
subparagraph (A)) but only after such taxes or
assessments become due and payable and the
organization has had an opportunity to pay such
taxes or assessments in accordance with State
law.
(3) Extension of obligations.--For purposes of this
section, an extension, renewal, or refinancing of an
obligation evidencing a pre-existing indebtedness shall
not be treated as the creation of a new indebtedness.
(4) Indebtedness incurred in performing exempt
purpose.--For purposes of this section, the term
``acquisition indebtedness'' does not include
indebtedness the incurrence of which is inherent in the
performance or exercise of the purpose or function
constituting the basis of the organization's exemption,
such as the indebtedness incurred by a credit union
described in section 501(c)(14) in accepting deposits
from its members.
(5) Annuities.--For purposes of this section, the
term ``acquisition indebtedness'' does not include an
obligation to pay an annuity which--
(A) is the sole consideration (other than a
mortgage to which paragraph (2)(B) applies)
issued in exchange for property if, at the time
of the exchange, the value of the annuity is
less than 90 percent of the value of the
property received in the exchange,
(B) is payable over the life of one
individual in being at the time the annuity is
issued, or over the lives of two individuals in
being at such time, and
(C) is payable under a contract which--
(i) does not guarantee a minimum
amount of payments or specify a maximum
amount of payments, and
(ii) does not provide for any
adjustment of the amount of the annuity
payments by reference to the income
received from the transferred property
or any other property.
(6) Certain Federal financing.--
(A) In general.--For purposes of this
section, the term ``acquisition indebtedness''
does not include--
(i) an obligation, to the extent that
it is insured by the Federal Housing
Administration, to finance the
purchase, rehabilitation, or
construction of housing for low and
moderate income persons, [or]
(ii) indebtedness incurred by a small
business investment company licensed
after the date of the enactment of the
American Jobs Creation Act of 2004
under the Small Business Investment Act
of 1958 if such indebtedness is
evidenced by a debenture--
(I) issued by such company
under section 303(a) of such
Act, and
(II) held or guaranteed by
the Small Business
Administration[.], or
(iii) indebtedness with respect to a
multiemployer plan under a loan made by
the Pension Rehabilitation
Administration pursuant to section 4 of
the Rehabilitation for Multiemployer
Pensions Act of 2019.
(B) Limitation.--Subparagraph (A)(ii) shall
not apply with respect to any small business
investment company during any period that--
(i) any organization which is exempt
from tax under this title (other than a
governmental unit) owns more than 25
percent of the capital or profits
interest in such company, or
(ii) organizations which are exempt
from tax under this title (including
governmental units other than any
agency or instrumentality of the United
States) own, in the aggregate, 50
percent or more of the capital or
profits interest in such company.
(7) Average acquisition indebtedness.--For purposes
of this section, the term ``average acquisition
indebtedness'' for any taxable year with respect to a
debt-financed property means the average amount,
determined under regulations prescribed by the
Secretary of the acquisition indebtedness during the
period the property is held by the organization during
the taxable year, except that for the purpose of
computing the percentage of any gain or loss to be
taken into account on a sale or other disposition of
debt-financed property, such term means the highest
amount of the acquisition indebtedness with respect to
such property during the 12-month period ending with
the date of the sale or other disposition.
(8) Securities subject to loans.--For purposes of
this section--
(A) payments with respect to securities loans
(as defined in section 512(a)(5)) shall be
deemed to be derived from the securities loaned
and not from collateral security or the
investment of collateral security from such
loans,
(B) any deductions which are directly
connected with collateral security for such
loan, or with the investment of collateral
security, shall be deemed to be deductions
which are directly connected with the
securities loaned, and
(C) an obligation to return collateral
security shall not be treated as acquisition
indebtedness (as defined in paragraph (1)).
(9) Real property acquired by a qualified
organization.--
(A) In general.--Except as provided in
subparagraph (B), the term ``acquisition
indebtedness'' does not, for purposes of this
section, include indebtedness incurred by a
qualified organization in acquiring or
improving any real property. For purposes of
this paragraph, an interest in a mortgage shall
in no event be treated as real property.
(B) Exceptions.--The provisions of
subparagraph (A) shall not apply in any case in
which--
(i) the price for the acquisition or
improvement is not a fixed amount
determined as of the date of the
acquisition or the completion of the
improvement;
(ii) the amount of any indebtedness
or any other amount payable with
respect to such indebtedness, or the
time for making any payment of any such
amount, is dependent, in whole or in
part, upon any revenue, income, or
profits derived from such real
property;
(iii) the real property is at any
time after the acquisition leased by
the qualified organization to the
person selling such property to such
organization or to any person who bears
a relationship described in section
267(b) or 707(b) to such person;
(iv) the real property is acquired by
a qualified trust from, or is at any
time after the acquisition leased by
such trust to, any person who--
(I) bears a relationship
which is described in
subparagraph (C), (E), or (G)
of section 4975(e)(2) to any
plan with respect to which such
trust was formed, or
(II) bears a relationship
which is described in
subparagraph (F) or (H) of
section 4975(e)(2) to any
person described in subclause
(I);
(v) any person described in clause
(iii) or (iv) provides the qualified
organization with financing in
connection with the acquisition or
improvement; or
(vi) the real property is held by a
partnership unless the partnership
meets the requirements of clauses (i)
through (v) and unless--
(I) all of the partners of
the partnership are qualified
organizations,
(II) each allocation to a
partner of the partnership
which is a qualified
organization is a qualified
allocation (within the meaning
of section 168(h)(6)), or
(III) such partnership meets
the requirements of
subparagraph (E).
For purposes of subclause (I) of clause (vi),
an organization shall not be treated as a
qualified organization if any income of such
organization is unrelated business taxable
income.
(C) Qualified organization.--For purposes of
this paragraph, the term ``qualified
organization'' means--
(i) an organization described in
section 170(b)(1)(A)(ii) and its
affiliated support organizations
described in section 509(a)(3);
(ii) any trust which constitutes a
qualified trust under section 401;
(iii) an organization described in
section 501(c)(25); or
(iv) a retirement income account
described in section 403(b)(9).
(D) Other pass-thru entities; tiered
entities.--Rules similar to the rules of
subparagraph (B)(vi) shall also apply in the
case of any pass-thru entity other than a
partnership and in the case of tiered
partnerships and other entities.
(E) Certain allocations permitted.--
(i) In general.--A partnership meets
the requirements of this subparagraph
if--
(I) the allocation of items
to any partner which is a
qualified organization cannot
result in such partner having a
share of the overall
partnership income for any
taxable year greater than such
partner's share of the overall
partnership loss for the
taxable year for which such
partner's loss share will be
the smallest, and
(II) each allocation with
respect to the partnership has
substantial economic effect
within the meaning of section
704(b)(2).
For purposes of this clause, items
allocated under section 704(c) shall
not be taken into account.
(ii) Special rules.--
(I) Chargebacks.--Except as
provided in regulations, a
partnership may without
violating the requirements of
this subparagraph provide for
chargebacks with respect to
disproportionate losses
previously allocated to
qualified organizations and
disproportionate income
previously allocated to other
partners. Any chargeback
referred to in the preceding
sentence shall not be at a
ratio in excess of the ratio
under which the loss or income
(as the case may be) was
allocated.
(II) Preferred rates of
return, etc..--To the extent
provided in regulations, a
partnership may without
violating the requirements of
this subparagraph provide for
reasonable preferred returns or
reasonable guaranteed payments.
(iii) Regulations.--The Secretary
shall prescribe such regulations as may
be necessary to carry out the purposes
of this subparagraph, including
regulations which may provide for
exclusion or segregation of items.
(F) Special rules for organizations described
in section 501(c)(25).--
(i) In general.--In computing under
section 512 the unrelated business
taxable income of a disqualified holder
of an interest in an organization
described in section 501(c)(25), there
shall be taken into account--
(I) as gross income derived
from an unrelated trade or
business, such holder's pro
rata share of the items of
income described in clause
(ii)(I) of such organization,
and
(II) as deductions allowable
in computing unrelated business
taxable income, such holder's
pro rata share of the items of
deduction described in clause
(ii)(II) of such organization.
Such amounts shall be taken into account for
the taxable year of the holder in which (or
with which) the taxable year of such
organization ends.
(ii) Description of amounts.--For
purposes of clause (i)--
(I) gross income is described
in this clause to the extent
such income would (but for this
paragraph) be treated under
subsection (a) as derived from
an unrelated trade or business,
and
(II) any deduction is
described in this clause to the
extent it would (but for this
paragraph) be allowable under
subsection (a)(2) in computing
unrelated business taxable
income.
(iii) Disqualified holder.--For
purposes of this subparagraph, the term
``disqualified holder'' means any
shareholder (or beneficiary) which is
not described in clause (i) or (ii) of
subparagraph (C).
(G) Special rules for purposes of the
exceptions.--Except as otherwise provided by
regulations--
(i) Small leases disregarded.--For
purposes of clauses (iii) and (iv) of
subparagraph (B), a lease to a person
described in such clause (iii) or (iv)
shall be disregarded if no more than 25
percent of the leasable floor space in
a building (or complex of buildings) is
covered by the lease and if the lease
is on commercially reasonable terms.
(ii) Commercially reasonable
financing.--Clause (v) of subparagraph
(B) shall not apply if the financing is
on commercially reasonable terms.
(H) Qualifying sales by financial
institutions.--
(i) In general.--In the case of a
qualifying sale by a financial
institution, except as provided in
regulations, clauses (i) and (ii) of
subparagraph (B) shall not apply with
respect to financing provided by such
institution for such sale.
(ii) Qualifying sale.--For purposes
of this clause, there is a qualifying
sale by a financial institution if--
(I) a qualified organization
acquires property described in
clause (iii) from a financial
institution and any gain
recognized by the financial
institution with respect to the
property is ordinary income,
(II) the stated principal
amount of the financing
provided by the financial
institution does not exceed the
amount of the outstanding
indebtedness (including accrued
but unpaid interest) of the
financial institution with
respect to the property
described in clause (iii)
immediately before the
acquisition referred to in
clause (iii) or (v), whichever
is applicable, and
(III) the present value
(determined as of the time of
the sale and by using the
applicable Federal rate
determined under section
1274(d)) of the maximum amount
payable pursuant to the
financing that is determined by
reference to the revenue,
income, or profits derived from
the property cannot exceed 30
percent of the total purchase
price of the property
(including the contingent
payments).
(iii) Property to which subparagraph
applies.--Property is described in this
clause if such property is foreclosure
property, or is real property which--
(I) was acquired by the
qualified organization from a
financial institution which is
in conservatorship or
receivership, or from the
conservator or receiver of such
an institution, and
(II) was held by the
financial institution at the
time it entered into
conservatorship or
receivership.
(iv) Financial institution.--For
purposes of this subparagraph, the term
``financial institution'' means--
(I) any financial institution
described in section 581 or
591(a),
(II) any other corporation
which is a direct or indirect
subsidiary of an institution
referred to in subclause (I)
but only if, by virtue of being
affiliated with such
institution, such other
corporation is subject to
supervision and examination by
a Federal or State agency which
regulates institutions referred
to in subclause (I), and
(III) any person acting as a
conservator or receiver of an
entity referred to in subclause
(I) or (II) (or any government
agency or corporation
succeeding to the rights or
interest of such person).
(v) Foreclosure property.--For
purposes of this subparagraph, the term
``foreclosure property'' means any real
property acquired by the financial
institution as the result of having bid
on such property at foreclosure, or by
operation of an agreement or process of
law, after there was a default (or a
default was imminent) on indebtedness
which such property secured.
(d) Basis of debt-financed property acquired in corporate
liquidation.--For purposes of this subtitle, if the property
was acquired in a complete or partial liquidation of a
corporation in exchange for its stock, the basis of the
property shall be the same as it would be in the hands of the
transferor corporation, increased by the amount of gain
recognized to the transferor corporation upon such distribution
and by the amount of any gain to the organization which was
included, on account of such distribution, in unrelated
business taxable income under subsection (a).
(e) Allocation rules.--Where debt-financed property is held
for purposes described in subsection (b)(1)(A), (B), (C), or
(D) as well as for other purposes, proper allocation shall be
made with respect to basis, indebtedness, and income and
deductions. The allocations required by this section shall be
made in accordance with regulations prescribed by the Secretary
to the extent proper to carry out the purposes of this section.
(f) Personal property leased with real property.--For
purposes of this section, the term ``real property'' includes
personal property of the lessor leased by it to a lessee of its
real estate if the lease of such personal property is made
under, or in connection with, the lease of such real estate.
(g) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of this section, including regulations to prevent the
circumvention of any provision of this section through the use
of segregated asset accounts.
* * * * * * *
Subtitle F--Procedure and Administration
* * * * * * *
CHAPTER 61--INFORMATION AND RETURNS
* * * * * * *
Subchapter A--RETURNS AND RECORDS
* * * * * * *
PART III--INFORMATION RETURNS
* * * * * * *
Subpart E--REGISTRATION OF AND INFORMATION CONCERNING PENSION, ETC.,
PLANS
* * * * * * *
Sec. 6059A. Reports of plans receiving pension rehabilitation loans.
* * * * * * *
SEC. 6059A. REPORTS OF PLANS RECEIVING PENSION REHABILITATION LOANS.
(a) In General.--In the case of a plan receiving a loan under
section 4(a) of the Rehabilitation for Multiemployer Pensions
Act of 2019, with respect to the first plan year beginning
after the date of the loan and each of the 29 succeeding plan
years, not later than the 90th day of each such plan year the
plan sponsor shall file with the Secretary a report (including
appropriate documentation and actuarial certifications from the
plan actuary, as required by the Secretary) that contains--
(1) the funded percentage (as defined in section
432(i)(2)) as of the first day of such plan year, and
the underlying actuarial value of assets (determined
with regard, and without regard, to annuity contracts
purchased and portfolios implemented with proceeds of
such loan) and liabilities (including any amounts due
with respect to such loan) taken into account in
determining such percentage,
(2) the market value of the assets of the plan
(determined as provided in paragraph (1)) as of the
last day of the plan year preceding such plan year,
(3) the total value of all contributions made by
employers and employees during the plan year preceding
such plan year,
(4) the total value of all benefits paid during the
plan year preceding such plan year,
(5) cash flow projections for such plan year and the
9 succeeding plan years, and the assumptions used in
making such projections,
(6) funding standard account projections for such
plan year and the 9 succeeding plan years, and the
assumptions relied upon in making such projections,
(7) the total value of all investment gains or losses
during the plan year preceding such plan year,
(8) any significant reduction in the number of active
participants during the plan year preceding such plan
year, and the reason for such reduction,
(9) a list of employers that withdrew from the plan
in the plan year preceding such plan year, and the
resulting reduction in contributions,
(10) a list of employers that paid withdrawal
liability to the plan during the plan year preceding
such plan year and, for each employer, a total
assessment of the withdrawal liability paid, the annual
payment amount, and the number of years remaining in
the payment schedule with respect to such withdrawal
liability,
(11) any material changes to benefits, accrual rates,
or contribution rates during the plan year preceding
such plan year, and whether such changes relate to the
terms of the loan,
(12) details regarding any funding improvement plan
or rehabilitation plan and updates to such plan,
(13) the number of participants and beneficiaries
during the plan year preceding such plan year who are
active participants, the number of participants and
beneficiaries in pay status, and the number of
terminated vested participants and beneficiaries,
(14) the amount of any financial assistance received
under section 4261 of the Employee Retirement Income
Security Act of 1974 to pay benefits during the
preceding plan year, and the total amount of such
financial assistance received for all preceding years,
(15) the information contained on the most recent
annual funding notice submitted by the plan under
section 101(f) of the Employee Retirement Income
Security Act of 1974,
(16) the information contained on the most recent
annual return under section 6058 and actuarial report
under section 6059 of the plan, and
(17) copies of the plan document and amendments,
other retirement benefit or ancillary benefit plans
relating to the plan and contribution obligations under
such plans, a breakdown of administrative expenses of
the plan, participant census data and distribution of
benefits, the most recent actuarial valuation report as
of the plan year, copies of collective bargaining
agreements, and financial reports, and such other
information as the Secretary, in consultation with the
Director of the Pension Rehabilitation Administration,
may require.
(b) Electronic Submission.--The report required under
subsection (a) shall be submitted electronically.
(c) Information Sharing.--The Secretary shall share the
information in the report under subsection (a) with the
Secretary of Labor and the Director of the Pension Benefit
Guaranty Corporation.
(d) Report to Participants, Beneficiaries, and Employers.--
Each plan sponsor required to file a report under subsection
(a) shall, before the expiration of the time prescribed for the
filing of such report, also provide a summary (written in a
manner so as to be understood by the average plan participant)
of the information in such report to participants and
beneficiaries in the plan and to each employer with an
obligation to contribute to the plan.
* * * * * * *
CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE
PENALTIES
* * * * * * *
Subchapter A--ADDITIONS TO THE TAX AND ADDITIONAL AMOUNTS
* * * * * * *
PART I--GENERAL PROVISIONS
* * * * * * *
SEC. 6652. FAILURE TO FILE CERTAIN INFORMATION RETURNS, REGISTRATION
STATEMENTS, ETC.
(a) Returns with respect to certain payments aggregating less
than $10.--In the case of each failure to file a statement of a
payment to another person required under the authority of--
(1) section 6042(a)(2) (relating to payments of
dividends aggregating less than $10), or
(2) section 6044(a)(2) (relating to payments of
patronage dividends aggregating less than $10),
on the date prescribed therefor (determined with regard to any
extension of time for filing), unless it is shown that such
failure is due to reasonable cause and not to willful neglect,
there shall be paid (upon notice and demand by the Secretary
and in the same manner as tax) by the person failing to so file
the statement, $1 for each such statement not so filed, but the
total amount imposed on the delinquent person for all such
failures during the calendar year shall not exceed $1,000.
(b) Failure to report tips.--In the case of failure by an
employee to report to his employer on the date and in the
manner prescribed therefor any amount of tips required to be so
reported by section 6053(a) which are wages (as defined in
section 3121(a)) or which are compensation (as defined in
section 3231(e)), unless it is shown that such failure is due
to reasonable cause and not due to willful neglect, there shall
be paid by the employee, in addition to the tax imposed by
section 3101 or section 3201 (as the case may be) with respect
to the amount of tips which he so failed to report, an amount
equal to 50 percent of such tax.
(c) Returns by exempt organizations and by certain trusts.--
(1) Annual returns under section 6033(a)(1) or
6012(a)(6).--
(A) Penalty on organization.--In the case
of--
(i) a failure to file a return
required under section 6033(a)(1)
(relating to returns by exempt
organizations) or section 6012(a)(6)
(relating to returns by political
organizations) on the date and in the
manner prescribed therefor (determined
with regard to any extension of time
for filing), or
(ii) a failure to include any of the
information required to be shown on a
return filed under section 6033(a)(1)
or section 6012(a)(6) or to show the
correct information,
there shall be paid by the exempt organization
$20 for each day during which such failure
continues. The maximum penalty under this
subparagraph on failures with respect to any 1
return shall not exceed the lesser of $10,000
or 5 percent of the gross receipts of the
organization for the year. In the case of an
organization having gross receipts exceeding
$1,000,000 for any year, with respect to the
return required under section 6033(a)(1) or
section 6012(a)(6) for such year, in applying
the first sentence of this subparagraph, the
amount of the penalty for each day during which
a failure continues shall be $100 in lieu of
the amount otherwise specified, and, in lieu of
applying the second sentence of this
subparagraph, the maximum penalty under this
subparagraph shall not exceed $50,000.
(B) Managers.--
(i) In general.--The Secretary may
make a written demand on any
organization subject to penalty under
subparagraph (A) specifying therein a
reasonable future date by which the
return shall be filed (or the
information furnished) for purposes of
this subparagraph.
(ii) Failure to comply with demand.--
If any person fails to comply with any
demand under clause (i) on or before
the date specified in such demand,
there shall be paid by the person
failing to so comply $10 for each day
after the expiration of the time
specified in such demand during which
such failure continues. The maximum
penalty imposed under this subparagraph
on all persons for failures with
respect to any 1 return shall not
exceed $5,000.
(C) Public inspection of annual returns and
reports.--In the case of a failure to comply
with the requirements of section 6104(d) with
respect to any annual return on the date and in
the manner prescribed therefor (determined with
regard to any extension of time for filing) or
report required under section 527(j), there
shall be paid by the person failing to meet
such requirements $20 for each day during which
such failure continues. The maximum penalty
imposed under this subparagraph on all persons
for failures with respect to any 1 return or
report shall not exceed $10,000.
(D) Public inspection of applications for
exemption and notice of status.--In the case of
a failure to comply with the requirements of
section 6104(d) with respect to any exempt
status application materials (as defined in
such section) or notice materials (as defined
in such section) on the date and in the manner
prescribed therefor, there shall be paid by the
person failing to meet such requirements $20
for each day during which such failure
continues.
(E) No penalty for certain annual notices.--
This paragraph shall not apply with respect to
any notice required under section 6033(i).
(2) Returns under section 6034 or 6043(b).--
(A) Penalty on organization or trust.--In the
case of a failure to file a return required
under section 6034 (relating to returns by
certain trusts) or section 6043(b) (relating to
terminations, etc., of exempt organizations),
on the date and in the manner prescribed
therefor (determined with regard to any
extension of time for filing), there shall be
paid by the exempt organization or trust
failing so to file $10 for each day during
which such failure continues, but the total
amount imposed under this subparagraph on any
organization or trust for failure to file any 1
return shall not exceed $5,000.
(B) Managers.--The Secretary may make written
demand on an organization or trust failing to
file under subparagraph (A) specifying therein
a reasonable future date by which such filing
shall be made for purposes of this
subparagraph. If such filing is not made on or
before such date, there shall be paid by the
person failing so to file $10 for each day
after the expiration of the time specified in
the written demand during which such failure
continues, but the total amount imposed under
this subparagraph on all persons for failure to
file any 1 return shall not exceed $5,000.
(C) Split-interest trusts.--In the case of a
trust which is required to file a return under
section 6034(a), subparagraphs (A) and (B) of
this paragraph shall not apply and paragraph
(1) shall apply in the same manner as if such
return were required under section 6033, except
that--
(i) the 5 percent limitation in the
second sentence of paragraph (1)(A)
shall not apply,
(ii) in the case of any trust with
gross income in excess of $250,000, in
applying the first sentence of
paragraph (1)(A), the amount of the
penalty for each day during which a
failure continues shall be $100 in lieu
of the amount otherwise specified, and
in lieu of applying the second sentence
of paragraph (1)(A), the maximum
penalty under paragraph (1)(A) shall
not exceed $50,000, and
(iii) the third sentence of paragraph
(1)(A) shall be disregarded.
In addition to any penalty imposed on the trust
pursuant to this subparagraph, if the person
required to file such return knowingly fails to
file the return, such penalty shall also be
imposed on such person who shall be personally
liable for such penalty.
(3) Disclosure under section 6033(a)(2).--
(A) Penalty on entities.--In the case of a
failure to file a disclosure required under
section 6033(a)(2), there shall be paid by the
tax-exempt entity (the entity manager in the
case of a tax-exempt entity described in
paragraph (4), (5), (6), or (7) of section
4965(c)) $100 for each day during which such
failure continues. The maximum penalty under
this subparagraph on failures with respect to
any 1 disclosure shall not exceed $50,000.
(B) Written demand.--
(i) In general.--The Secretary may
make a written demand on any entity or
manager subject to penalty under
subparagraph (A) specifying therein a
reasonable future date by which the
disclosure shall be filed for purposes
of this subparagraph.
(ii) Failure to comply with demand.--
If any entity or manager fails to
comply with any demand under clause (i)
on or before the date specified in such
demand, there shall be paid by such
entity or manager failing to so comply
$100 for each day after the expiration
of the time specified in such demand
during which such failure continues.
The maximum penalty imposed under this
subparagraph on all entities and
managers for failures with respect to
any 1 disclosure shall not exceed
$10,000.
(C) Definitions.--Any term used in this
section which is also used in section 4965
shall have the meaning given such term under
section 4965.
(4) Notices under section 506.--
(A) Penalty on organization.--In the case of
a failure to submit a notice required under
section 506(a) (relating to organizations
required to notify Secretary of intent to
operate as 501(c)(4)) on the date and in the
manner prescribed therefor, there shall be paid
by the organization failing to so submit $20
for each day during which such failure
continues, but the total amount imposed under
this subparagraph on any organization for
failure to submit any one notice shall not
exceed $5,000.
(B) Managers.--The Secretary may make written
demand on an organization subject to penalty
under subparagraph (A) specifying in such
demand a reasonable future date by which the
notice shall be submitted for purposes of this
subparagraph. If such notice is not submitted
on or before such date, there shall be paid by
the person failing to so submit $20 for each
day after the expiration of the time specified
in the written demand during which such failure
continues, but the total amount imposed under
this subparagraph on all persons for failure to
submit any one notice shall not exceed $5,000.
(5) Reasonable cause exception.--No penalty shall be
imposed under this subsection with respect to any
failure if it is shown that such failure is due to
reasonable cause.
(6) Other special rules.--
(A) Treatment as tax.--Any penalty imposed
under this subsection shall be paid on notice
and demand of the Secretary and in the same
manner as tax.
(B) Joint and several liability.--If more
than 1 person is liable under this subsection
for any penalty with respect to any failure,
all such persons shall be jointly and severally
liable with respect to such failure.
(C) Person.--For purposes of this subsection,
the term ``person'' means any officer,
director, trustee, employee, or other
individual who is under a duty to perform the
act in respect of which the violation occurs.
(7) Adjustment for inflation.--
(A) In general.--In the case of any failure
relating to a return required to be filed in a
calendar year beginning after 2014, each of the
dollar amounts under paragraphs (1), (2), and
(3) shall be increased by an amount equal to
such dollar amount multiplied by the cost-of-
living adjustment determined under section
1(f)(3) for the calendar year determined by
substituting ``calendar year 2013'' for
``calendar year 2016'' in subparagraph (A)(ii)
thereof.
(B) Rounding.--If any amount adjusted under
subparagraph (A)--
(i) is not less than $5,000 and is
not a multiple of $500, such amount
shall be rounded to the next lowest
multiple of $500, and
(ii) is not described in clause (i)
and is not a multiple of $5, such
amount shall be rounded to the next
lowest multiple of $5.
(d) Annual registration and other notification by pension
plan.--
(1) Registration.--In the case of any failure to file
a registration statement required under section 6057(a)
(relating to annual registration of certain plans)
which includes all participants required to be included
in such statement, on the date prescribed therefor
(determined without regard to any extension of time for
filing), unless it is shown that such failure is due to
reasonable cause, there shall be paid (on notice and
demand by the Secretary and in the same manner as tax)
by the person failing so to file, an amount equal to $1
for each participant with respect to whom there is a
failure to file, multiplied by the number of days
during which such failure continues, but the total
amount imposed under this paragraph on any person for
any failure to file with respect to any plan year shall
not exceed $5,000.
(2) Notification of change of status.--In the case of
failure to file a notification required under section
6057(b) (relating to notification of change of status)
on the date prescribed therefor (determined without
regard to any extension of time for filing), unless it
is shown that such failure is due to reasonable cause,
there shall be paid (on notice and demand by the
Secretary and in the same manner as tax) by the person
failing so to file, $1 for each day during which such
failure continues, but the total amounts imposed under
this paragraph on any person for failure to file any
notification shall not exceed $1,000.
(e) Information required in connection with certain plans of
deferred compensation, etc..--In the case of failure to file a
return or statement required under section 6058 (relating to
information required in connection with certain plans of
deferred compensation), 6059A (relating to reports of plans
receiving pension rehabilitation loans) , 6047 (relating to
information relating to certain trusts and annuity and bond
purchase plans), or 6039D (relating to returns and records with
respect to certain fringe benefit plans) on the date and in the
manner prescribed therefor (determined with regard to any
extension of time for filing), unless it is shown that such
failure is due to reasonable cause, there shall be paid (on
notice and demand by the Secretary and in the same manner as
tax) by the person failing so to file, $25 ($100 in the case of
failures under section 6059A) for each day during which such
failure continues, but the total amount imposed under this
subsection on any person for failure to file any return shall
not exceed $15,000. This subsection shall not apply to any
return or statement which is an information return described in
section 6724(d)(1)(C)(ii) or a payee statement described in
section 6724(d)(2)(AA). In the case of a failure with respect
to section 6059A, the amount imposed under this subsection
shall not be paid from the assets of the plan.
(f) Returns required under section 6039C.--
(1) In general.--In the case of each failure to make
a return required by section 6039C which contains the
information required by such section on the date
prescribed therefor (determined with regard to any
extension of time for filing), unless it is shown that
such failure is due to reasonable cause and not to
willful neglect, the amount determined under paragraph
(2) shall be paid (upon notice and demand by the
Secretary and in the same manner as tax) by the person
failing to make such return.
(2) Amount of penalty.--For purposes of paragraph
(1), the amount determined under this paragraph with
respect to any failure shall be $25 for each day during
which such failure continues.
(3) Limitation.--The amount determined under
paragraph (2) with respect to any person for failing to
meet the requirements of section 6039C for any calendar
year shall not exceed the lesser of--
(A) $25,000, or
(B) 5 percent of the aggregate of the fair
market value of the United States real property
interests owned by such person at any time
during such year.
For purposes of the preceding sentence, fair market
value shall be determined as of the end of the calendar
year (or, in the case of any property disposed of
during the calendar year, as of the date of such
disposition).
(h) Failure to give notice to recipients of certain pension,
etc., distributions.--In the case of each failure to provide
notice as required by section 3405(e)(10)(B), at the time
prescribed therefor, unless it is shown that such failure is
due to reasonable cause and not to willful neglect, there shall
be paid, on notice and demand of the Secretary and in the same
manner as tax, by the person failing to provide such notice, an
amount equal to $10 for each such failure, but the total amount
imposed on such person for all such failures during any
calendar year shall not exceed $5,000.
(i) Failure to give written explanation to recipients of
certain qualifying rollover distributions.--In the case of each
failure to provide a written explanation as required by section
402(f), at the time prescribed therefor, unless it is shown
that such failure is due to reasonable cause and not to willful
neglect, there shall be paid, on notice and demand of the
Secretary and in the same manner as tax, by the person failing
to provide such written explanation, an amount equal to $100
for each such failure, but the total amount imposed on such
person for all such failures during any calendar year shall not
exceed $50,000.
(j) Failure to file certification with respect to certain
residential rental projects.--In the case of each failure to
provide a certification as required by section 142(d)(7) at the
time prescribed therefor, unless it is shown that such failure
is due to reasonable cause and not to willful neglect, there
shall be paid, on notice and demand of the Secretary and in the
same manner as tax, by the person failing to provide such
certification, an amount equal to $100 for each such failure.
(k) Failure to make reports required under section 1202.--In
the case of a failure to make a report required under section
1202(d)(1)(C) which contains the information required by such
section on the date prescribed therefor (determined with regard
to any extension of time for filing), there shall be paid (on
notice and demand by the Secretary and in the same manner as
tax) by the person failing to make such report, an amount equal
to $50 for each report with respect to which there was such a
failure. In the case of any failure due to negligence or
intentional disregard, the preceding sentence shall be applied
by substituting ``$100'' for ``$50''. In the case of a report
covering periods in 2 or more years, the penalty determined
under preceding provisions of this subsection shall be
multiplied by the number of such years. No penalty shall be
imposed under this subsection on any failure which is shown to
be due to reasonable cause and not willful neglect.
(l) Failure to file return with respect to certain corporate
transactions.--In the case of any failure to make a return
required under section 6043(c) containing the information
required by such section on the date prescribed therefor
(determined with regard to any extension of time for filing),
unless it is shown that such failure is due to reasonable
cause, there shall be paid (on notice and demand by the
Secretary and in the same manner as tax) by the person failing
to file such return, an amount equal to $500 for each day
during which such failure continues, but the total amount
imposed under this subsection with respect to any return shall
not exceed $100,000.
(m) Alcohol and tobacco taxes.--For penalties for failure to
file certain information returns with respect to alcohol and
tobacco taxes, see, generally, subtitle E.
(n) Failure to make reports required under sections 3511,
6053(c)(8), and 7705.--In the case of a failure to make a
report required under section 3511, 6053(c)(8), or 7705 which
contains the information required by such section on the date
prescribed therefor (determined with regard to any extension of
time for filing), there shall be paid (on notice and demand by
the Secretary and in the same manner as tax) by the person
failing to make such report, an amount equal to $50 for each
report with respect to which there was such a failure. In the
case of any failure due to negligence or intentional disregard
the preceding sentence shall be applied by substituting
``$100'' for ``$50''.
(o) Failure to provide notices with respect to qualified
small employer health reimbursement arrangements.--In the case
of each failure to provide a written notice as required by
section 9831(d)(4), unless it is shown that such failure is due
to reasonable cause and not willful neglect, there shall be
paid, on notice and demand of the Secretary and in the same
manner as tax, by the person failing to provide such written
notice, an amount equal to $50 per employee per incident of
failure to provide such notice, but the total amount imposed on
such person for all such failures during any calendar year
shall not exceed $2,500.
(p) Failure to provide notice under section 83(i).--In the
case of each failure to provide a notice as required by section
83(i)(6), at the time prescribed therefor, unless it is shown
that such failure is due to reasonable cause and not to willful
neglect, there shall be paid, on notice and demand of the
Secretary and in the same manner as tax, by the person failing
to provide such notice, an amount equal to $100 for each such
failure, but the total amount imposed on such person for all
such failures during any calendar year shall not exceed
$50,000.
* * * * * * *
Subtitle I--Trust Fund Code
* * * * * * *
CHAPTER 98--TRUST FUND CODE
* * * * * * *
Subchapter A--ESTABLISHMENT OF TRUST FUNDS
Sec. 9501. Black Lung Disability Trust Fund.
* * * * * * *
Sec. 9512. Pension Rehabilitation Trust Fund.
* * * * * * *
SEC. 9512. PENSION REHABILITATION TRUST FUND.
(a) Creation of Trust Fund.--There is established in the
Treasury of the United States a trust fund to be known as the
``Pension Rehabilitation Trust Fund'' (hereafter in this
section referred to as the ``Fund''), consisting of such
amounts as may be appropriated or credited to the Fund as
provided in this section and section 9602(b).
(b) Transfers to Fund.--
(1) Amounts attributable to treasury bonds.--There
shall be credited to the Fund the amounts transferred
under section 6 of the Rehabilitation for Multiemployer
Pensions Act of 2019.
(2) Loan interest and principal.--
(A) In general.--The Director of the Pension
Rehabilitation Administration established under
section 2 of the Rehabilitation for
Multiemployer Pensions Act of 2019 shall
deposit in the Fund any amounts received from a
plan as payment of interest or principal on a
loan under section 4 of such Act.
(B) Interest.--For purposes of subparagraph
(A), the term ``interest'' includes points and
other similar amounts.
(3) Transfers from secretary.--The Director of the
Pension Rehabilitation Administration shall deposit in
the Fund any amounts received from the Secretary under
section 2(c) of such Act.
(4) Availability of funds.--Amounts credited to or
deposited in the Fund shall remain available until
expended.
(c) Expenditures From Fund.--Amounts in the Fund are
available without further appropriation to the Pension
Rehabilitation Administration--
(1) for the purpose of making the loans described in
section 4 of the Rehabilitation for Multiemployer
Pensions Act of 2019,
(2) for the payment of principal and interest on
obligations issued under section 6 of such Act, and
(3) for administrative and operating expenses of such
Administration.
* * * * * * *
----------
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
* * * * * * *
TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS
* * * * * * *
Subtitle B--Regulatory Provisions
* * * * * * *
Part 3--Funding
* * * * * * *
Sec. 305. (a) General Rule.--For purposes of this part, in
the case of a multiemployer plan in effect on July 16, 2006--
(1) if the plan is in endangered status--
(A) the plan sponsor shall adopt and
implement a funding improvement plan in
accordance with the requirements of subsection
(c), and
(B) the requirements of subsection (d) shall
apply during the funding plan adoption period
and the funding improvement period,
(2) if the plan is in critical status--
(A) the plan sponsor shall adopt and
implement a rehabilitation plan in accordance
with the requirements of subsection (e), and
(B) the requirements of subsection (f) shall
apply during the rehabilitation plan adoption
period and the rehabilitation period, and
(3) if the plan is in critical and declining status--
(A) the requirements of paragraph (2) shall
apply to the plan; and
(B) the plan sponsor may, by plan amendment,
suspend benefits in accordance with the
requirements of subsection (e)(9).
(b) Determination of Endangered and Critical Status.--For
purposes of this section--
(1) Endangered status.--A multiemployer plan is in
endangered status for a plan year if, as determined by
the plan actuary under paragraph (3), the plan is not
in critical status for the plan year and is not
described in paragraph (5), and, as of the beginning of
the plan year, either--
(A) the plan's funded percentage for such
plan year is less than 80 percent, or
(B) the plan has an accumulated funding
deficiency for such plan year, or is projected
to have such an accumulated funding deficiency
for any of the 6 succeeding plan years, taking
into account any extension of amortization
periods under section 304(d).
For purposes of this section, a plan shall be treated
as in seriously endangered status for a plan year if
the plan is described in both subparagraphs (A) and
(B).
(2) Critical status.--A multiemployer plan is in
critical status for a plan year if, as determined by
the plan actuary under paragraph (3), the plan is
described in 1 or more of the following subparagraphs
as of the beginning of the plan year:
(A) A plan is described in this subparagraph
if--
(i) the funded percentage of the plan
is less than 65 percent, and
(ii) the sum of--
(I) the fair market value of
plan assets, plus
(II) the present value of the
reasonably anticipated employer
contributions for the current
plan year and each of the 6
succeeding plan years, assuming
that the terms of all
collective bargaining
agreements pursuant to which
the plan is maintained for the
current plan year continue in
effect for succeeding plan
years,
is less than the present value of all
nonforfeitable benefits projected to be
payable under the plan during the
current plan year and each of the 6
succeeding plan years (plus
administrative expenses for such plan
years).
(B) A plan is described in this subparagraph
if--
(i) the plan has an accumulated
funding deficiency for the current plan
year, not taking into account any
extension of amortization periods under
section 304(d), or
(ii) the plan is projected to have an
accumulated funding deficiency for any
of the 3 succeeding plan years (4
succeeding plan years if the funded
percentage of the plan is 65 percent or
less), not taking into account any
extension of amortization periods under
section 304(d).
(C) A plan is described in this subparagraph
if--
(i)(I) the plan's normal cost for the
current plan year, plus interest
(determined at the rate used for
determining costs under the plan) for
the current plan year on the amount of
unfunded benefit liabilities under the
plan as of the last date of the
preceding plan year, exceeds
(II) the present value of the
reasonably anticipated employer and
employee contributions for the current
plan year,
(ii) the present value, as of the
beginning of the current plan year, of
nonforfeitable benefits of inactive
participants is greater than the
present value of nonforfeitable
benefits of active participants, and
(iii) the plan has an accumulated
funding deficiency for the current plan
year, or is projected to have such a
deficiency for any of the 4 succeeding
plan years, not taking into account any
extension of amortization periods under
section 304(d).
(D) A plan is described in this subparagraph
if the sum of--
(i) the fair market value of plan
assets, plus
(ii) the present value of the
reasonably anticipated employer
contributions for the current plan year
and each of the 4 succeeding plan
years, assuming that the terms of all
collective bargaining agreements
pursuant to which the plan is
maintained for the current plan year
continue in effect for succeeding plan
years,
is less than the present value of all benefits
projected to be payable under the plan during
the current plan year and each of the 4
succeeding plan years (plus administrative
expenses for such plan years).
(3) Annual certification by plan actuary.--
(A) In general.--Not later than the 90th day
of each plan year of a multiemployer plan, the
plan actuary shall certify to the Secretary of
the Treasury and to the plan sponsor--
(i) whether or not the plan is in
endangered status for such plan year,
whether or not the plan is or will be
in critical status for such plan yearor
for any of the succeeding 5 plan years,
and whether or not the plan is or will
be in critical and declining status for
such plan year, and
(ii) in the case of a plan which is
in a funding improvement or
rehabilitation period, whether or not
the plan is making the scheduled
progress in meeting the requirements of
its funding improvement or
rehabilitation plan.
(B) Actuarial projections of assets and
liabilities.--
(i) In general.--Except as provided
in clause (iv), in making the
determinations and projections under
this subsection, the plan actuary shall
make projections required for the
current and succeeding plan years of
the current value of the assets of the
plan and the present value of all
liabilities to participants and
beneficiaries under the plan for the
current plan year as of the beginning
of such year. The actuary's projections
shall be based on reasonable actuarial
estimates, assumptions, and methods
that, except as provided in clause
(iii), offer the actuary's best
estimate of anticipated experience
under the plan. The projected present
value of liabilities as of the
beginning of such year shall be
determined based on the most recent of
either--
(I) the actuarial statement
required under section 103(d)
with respect to the most
recently filed annual report,
or
(II) the actuarial valuation
for the preceding plan year.
(ii) Determinations of future
contributions.--Any actuarial
projection of plan assets shall
assume--
(I) reasonably anticipated
employer contributions for the
current and succeeding plan
years, assuming that the terms
of the one or more collective
bargaining agreements pursuant
to which the plan is maintained
for the current plan year
continue in effect for
succeeding plan years, or
(II) that employer
contributions for the most
recent plan year will continue
indefinitely, but only if the
plan actuary determines there
have been no significant
demographic changes that would
make such assumption
unreasonable.
(iii) Projected industry activity.--
Any projection of activity in the
industry or industries covered by the
plan, including future covered
employment and contribution levels,
shall be based on information provided
by the plan sponsor, which shall act
reasonably and in good faith.
(iv) Projections relating to critical
status in succeeding plan years.--
Clauses (i) and (ii) (other than the
2nd sentence of clause (i)) may be
disregarded by a plan actuary in the
case of any certification of whether a
plan will be in critical status in a
succeeding plan year, except that a
plan sponsor may not elect to be in
critical status for a plan year under
paragraph (4) in any case in which the
certification upon which such election
would be based is made without regard
to such clauses.
(iv) Projections of critical and
declining status.--In determining
whether a plan is in critical and
declining status as described in
subsection (e)(9), clauses (i), (ii),
and (iii) shall apply, except that--
(I) if reasonable, the plan
actuary shall assume that each
contributing employer in
compliance continues to comply
through the end of the
rehabilitation period or such
later time as provided in
subsection (e)(3)(A)(ii) with
the terms of the rehabilitation
plan that correspond to the
schedule adopted or imposed
under subsection (e), and
(II) the plan actuary shall
take into account any
suspensions of benefits
described in subsection (e)(9)
adopted in a prior plan year
that are still in effect.
(C) Penalty for failure to secure timely
actuarial certification.--Any failure of the
plan's actuary to certify the plan's status
under this subsection by the date specified in
subparagraph (A) shall be treated for purposes
of section 502(c)(2) as a failure or refusal by
the plan administrator to file the annual
report required to be filed with the Secretary
under section 101(b)(1).
(D) Notice.--
(i) In general.--In any case in which
it is certified under subparagraph (A)
that a multiemployer plan is or will be
in endangered or critical status for a
plan year or in which a plan sponsor
elects to be in critical status for a
plan year under paragraph (4), the plan
sponsor shall, not later than 30 days
after the date of the certification,
provide notification of the endangered
or critical status to the participants
and beneficiaries, the bargaining
parties, the Pension Benefit Guaranty
Corporation, and the Secretary. In any
case in which a plan sponsor elects to
be in critical status for a plan year
under paragraph (4), the plan sponsor
shall notify the Secretary of the
Treasury of such election not later
than 30 days after the date of such
certification or such other time as the
Secretary of the Treasury may prescribe
by regulations or other guidance.
(ii) Plans in critical status.--If it
is certified under subparagraph (A)
that a multiemployer plan is or will be
in critical status, the plan sponsor
shall include in the notice under
clause (i) an explanation of the
possibility that--
(I) adjustable benefits (as
defined in subsection (e)(8))
may be reduced, and
(II) such reductions may
apply to participants and
beneficiaries whose benefit
commencement date is on or
after the date such notice is
provided for the first plan
year in which the plan is in
critical status.
(iii) In the case of a multiemployer
plan that would be in endangered status
but for paragraph (5), the plan sponsor
shall provide notice to the bargaining
parties and the Pension Benefit
Guaranty Corporation that the plan
would be in endangered status but for
such paragraph.
(iv) Model notice.--The Secretary of
the Treasury, in consultation with the
Secretary shall prescribe a model
notice that a multiemployer plan may
use to satisfy the requirements under
clauses (ii) and (iii).
(v) Notice of projection to be in
critical status in a future plan
year.--In any case in which it is
certified under subparagraph (A)(i)
that a multiemployer plan will be in
critical status for any of 5 succeeding
plan years (but not for the current
plan year) and the plan sponsor of such
plan has not made an election to be in
critical status for the plan year under
paragraph (4), the plan sponsor shall,
not later than 30 days after the date
of the certification, provide
notification of the projected critical
status to the Pension Benefit Guaranty
Corporation.
(4) Election to be in critical status.--
Notwithstanding paragraph (2) and subject to paragraph
(3)(B)(iv)--
(A) the plan sponsor of a multiemployer plan
that is not in critical status for a plan year
but that is projected by the plan actuary,
pursuant to the determination under paragraph
(3), to be in critical status in any of the
succeeding 5 plan years may, not later than 30
days after the date of the certification under
paragraph (3)(A), elect to be in critical
status effective for the current plan year,
(B) the plan year in which the plan sponsor
elects to be in critical status under
subparagraph (A) shall be treated for purposes
of this section as the first year in which the
plan is in critical status, regardless of the
date on which the plan first satisfies the
criteria for critical status under paragraph
(2), and
(C) a plan that is in critical status under
this paragraph shall not emerge from critical
status except in accordance with subsection
(e)(4)(B).
(5) Special rule.--A plan is described in this
paragraph if--
(A) as part of the actuarial certification of
endangered status under paragraph (3)(A) for
the plan year, the plan actuary certifies that
the plan is projected to no longer be described
in either paragraph (1)(A) or paragraph (1)(B)
as of the end of the tenth plan year ending
after the plan year to which the certification
relates, and
(B) the plan was not in critical or
endangered status for the immediately preceding
plan year.
(6) Critical and declining status.--For purposes of
this section, a plan in critical status shall be
treated as in critical and declining status if the plan
is described in one or more of subparagraphs (A), (B),
(C), and (D) of paragraph (2) and the plan is projected
to become insolvent within the meaning of section 4245
during the current plan year or any of the 14
succeeding plan years (19 succeeding plan years if the
plan has a ratio of inactive participants to active
participants that exceeds 2 to 1 or if the funded
percentage of the plan is less than 80 percent).
(c) Funding Improvement Plan Must Be Adopted for
Multiemployer Plans in Endangered Status.--
(1) In general.--In any case in which a multiemployer
plan is in endangered status for a plan year, the plan
sponsor, in accordance with this subsection--
(A) shall adopt a funding improvement plan
not later than 240 days following the required
date for the actuarial certification of
endangered status under subsection (b)(3)(A),
and
(B) within 30 days after the adoption of the
funding improvement plan--
(i) shall provide to the bargaining
parties 1 or more schedules showing
revised benefit structures, revised
contribution structures, or both,
which, if adopted, may reasonably be
expected to enable the multiemployer
plan to meet the applicable benchmarks
in accordance with the funding
improvement plan, including--
(I) one proposal for
reductions in the amount of
future benefit accruals
necessary to achieve the
applicable benchmarks, assuming
no amendments increasing
contributions under the plan
(other than amendments
increasing contributions
necessary to achieve the
applicable benchmarks after
amendments have reduced future
benefit accruals to the maximum
extent permitted by law), and
(II) one proposal for
increases in contributions
under the plan necessary to
achieve the applicable
benchmarks, assuming no
amendments reducing future
benefit accruals under the
plan, and
(ii) may, if the plan sponsor deems
appropriate, prepare and provide the
bargaining parties with additional
information relating to contribution
rates or benefit reductions,
alternative schedules, or other
information relevant to achieving the
applicable benchmarks in accordance
with the funding improvement plan.
For purposes of this section, the term
``applicable benchmarks'' means the
requirements applicable to the multiemployer
plan under paragraph (3) (as modified by
paragraph (5)).
(2) Exception for years after process begins.--
Paragraph (1) shall not apply to a plan year if such
year is in a funding plan adoption period or funding
improvement period by reason of the plan being in
endangered status for a preceding plan year. For
purposes of this section, such preceding plan year
shall be the initial determination year with respect to
the funding improvement plan to which it relates.
(3) Funding improvement plan.--For purposes of this
section--
(A) In general.--A funding improvement plan
is a plan which consists of the actions,
including options or a range of options to be
proposed to the bargaining parties, formulated
to provide, based on reasonably anticipated
experience and reasonable actuarial
assumptions, for the attainment by the plan
during the funding improvement period of the
following requirements:
(i) Increase in plan's funding
percentage.--The plan's funded
percentage as of the close of the
funding improvement period equals or
exceeds a percentage equal to the sum
of--
(I) such percentage as of the
beginning of the first plan
year for which the plan is
certified to be in endangered
status pursuant to paragraph
(b)(3), plus
(II) 33 percent of the
difference between 100 percent
and the percentage under
subclause (I).
(ii) Avoidance of accumulated funding
deficiencies.--No accumulated funding
deficiency for the last plan year
during the funding improvement period
(taking into account any extension of
amortization periods under section
304(d)).
(B) Seriously endangered plans.--In the case
of a plan in seriously endangered status,
except as provided in paragraph (5),
subparagraph (A)(i)(II) shall be applied by
substituting ``20 percent'' for ``33 percent''.
(4) Funding improvement period.--For purposes of this
section--
(A) In general.--The funding improvement
period for any funding improvement plan adopted
pursuant to this subsection is the 10-year
period beginning on the first day of the first
plan year of the multiemployer plan beginning
after the earlier of--
(i) the second anniversary of the
date of the adoption of the funding
improvement plan, or
(ii) the expiration of the collective
bargaining agreements in effect on the
due date for the actuarial
certification of endangered status for
the initial determination year under
subsection (b)(3)(A) and covering, as
of such due date, at least 75 percent
of the active participants in such
multiemployer plan.
(B) Seriously endangered plans.--In the case
of a plan in seriously endangered status,
except as provided in paragraph (5),
subparagraph (A) shall be applied by
substituting ``15-year period'' for ``10-year
period''.
(C) Coordination with changes in status.--
(i) Plans no longer in endangered
status.--If the plan's actuary
certifies under subsection (b)(3)(A)
for a plan year in any funding plan
adoption period or funding improvement
period that the plan is no longer in
endangered status and is not in
critical status, the funding plan
adoption period or funding improvement
period, whichever is applicable, shall
end as of the close of the preceding
plan year.
(ii) Plans in critical status.--If
the plan's actuary certifies under
subsection (b)(3)(A) for a plan year in
any funding plan adoption period or
funding improvement period that the
plan is in critical status, the funding
plan adoption period or funding
improvement period, whichever is
applicable, shall end as of the close
of the plan year preceding the first
plan year in the rehabilitation period
with respect to such status.
(D) Plans in endangered status at end of
period.--If the plan's actuary certifies under
subsection (b)(3)(A) for the first plan year
following the close of the period described in
subparagraph (A) that the plan is in endangered
status, the provisions of this subsection and
subsection (d) shall be applied as if such
first plan year were an initial determination
year, except that the plan may not be amended
in a manner inconsistent with the funding
improvement plan in effect for the preceding
plan year until a new funding improvement plan
is adopted.
(5) Special rules for seriously endangered plans more
than 70 percent funded.--
(A) In general.--If the funded percentage of
a plan in seriously endangered status was more
than 70 percent as of the beginning of the
initial determination year--
(i) paragraphs (3)(B) and (4)(B)
shall apply only if the plan's actuary
certifies, within 30 days after the
certification under subsection
(b)(3)(A) for the initial determination
year, that, based on the terms of the
plan and the collective bargaining
agreements in effect at the time of
such certification, the plan is not
projected to meet the requirements of
paragraph (3)(A) (without regard to
paragraphs (3)(B) and (4)(B)), and
(ii) if there is a certification
under clause (i), the plan may, in
formulating its funding improvement
plan, only take into account the rules
of paragraph (3)(B) and (4)(B) for plan
years in the funding improvement period
beginning on or before the date on
which the last of the collective
bargaining agreements described in
paragraph (4)(A)(ii) expires.
(B) Special rule after expiration of
agreements.--Notwithstanding subparagraph
(A)(ii), if, for any plan year ending after the
date described in subparagraph (A)(ii), the
plan actuary certifies (at the time of the
annual certification under subsection (b)(3)(A)
for such plan year) that, based on the terms of
the plan and collective bargaining agreements
in effect at the time of that annual
certification, the plan is not projected to be
able to meet the requirements of paragraph
(3)(A) (without regard to paragraphs (3)(B) and
(4)(B)), paragraphs (3)(B) and (4)(B) shall
continue to apply for such year.
(6) Updates to funding improvement plan and
schedules.--
(A) Funding improvement plan.--The plan
sponsor shall annually update the funding
improvement plan and shall file the update with
the plan's annual report under section 104.
(B) Schedules.--The plan sponsor shall
annually update any schedule of contribution
rates provided under this subsection to reflect
the experience of the plan.
(C) Duration of schedule.--A schedule of
contribution rates provided by the plan sponsor
and relied upon by bargaining parties in
negotiating a collective bargaining agreement
shall remain in effect for the duration of that
collective bargaining agreement.
(7) Imposition of schedule where failure to adopt
funding improvement plan.--
(A) Initial contribution schedule.--If--
(i) a collective bargaining agreement
providing for contributions under a
multiemployer plan that was in effect
at the time the plan entered endangered
status expires, and
(ii) after receiving one or more
schedules from the plan sponsor under
paragraph (1)(B), the bargaining
parties with respect to such agreement
fail to adopt a contribution schedule
with terms consistent with the funding
improvement plan and a schedule from
the plan sponsor,
the plan sponsor shall implement the schedule
described in paragraph (1)(B)(i)(I) beginning
on the date specified in subparagraph (C).
(B) Subsequent contribution schedule.--If--
(i) a collective bargaining agreement
providing for contributions under a
multiemployer plan in accordance with a
schedule provided by the plan sponsor
pursuant to a funding improvement plan
(or imposed under subparagraph (A))
expires while the plan is still in
endangered status, and
(ii) after receiving one or more
updated schedules from the plan sponsor
under paragraph (6)(B), the bargaining
parties with respect to such agreement
fail to adopt a contribution schedule
with terms consistent with the updated
funding improvement plan and a schedule
from the plan sponsor,
then the contribution schedule applicable under
the expired collective bargaining agreement, as
updated and in effect on the date the
collective bargaining agreement expires, shall
be implemented by the plan sponsor beginning on
the date specified in subparagraph (C).
(C) Date of implementation.--The date
specified in this subparagraph is the date
which is 180 days after the date on which the
collective bargaining agreement described in
subparagraph (A) or (B) expires.
(D) Failure to make scheduled
contributions.--Any failure to make a
contribution under a schedule of contribution
rates provided under this paragraph shall be
treated as a delinquent contribution under
section 515 and shall be enforceable as such.
(8) Funding plan adoption period.--For purposes of
this section, the term ``funding plan adoption period''
means the period beginning on the date of the
certification under subsection (b)(3)(A) for the
initial determination year and ending on the day before
the first day of the funding improvement period.
(d) Rules for Operation of Plan During Adoption and
Improvement Periods.--
(1) Compliance with funding improvement plan.--
(A) In general.--A plan may not be amended
after the date of the adoption of a funding
improvement plan under subsection (c) so as to
be inconsistent with the funding improvement
plan.
(B) Special rules for benefit increases.--A
plan may not be amended after the date of the
adoption of a funding improvement plan under
subsection (c) so as to increase benefits,
including future benefit accruals, unless the
plan actuary certifies that such increase is
paid for out of additional contributions not
contemplated by the funding improvement plan,
and, after taking into account the benefit
increase, the multiemployer plan still is
reasonably expected to meet the applicable
benchmark on the schedule contemplated in the
funding improvement plan.
(2) Special rules for plan adoption period.--During
the period beginning on the date of the certification
under subsection (b)(3)(A) for the initial
determination year and ending on the date of the
adoption of a funding improvement plan--
(A) the plan sponsor may not accept a
collective bargaining agreement or
participation agreement with respect to the
multiemployer plan that provides for--
(i) a reduction in the level of
contributions for any participants,
(ii) a suspension of contributions
with respect to any period of service,
or
(iii) any new direct or indirect
exclusion of younger or newly hired
employees from plan participation, and
(B) no amendment of the plan which increases
the liabilities of the plan by reason of any
increase in benefits, any change in the accrual
of benefits, or any change in the rate at which
benefits become nonforfeitable under the plan
may be adopted unless the amendment is required
as a condition of qualification under part I of
subchapter D of chapter 1 of the Internal
Revenue Code of 1986 or to comply with other
applicable law.
(e) Rehabilitation Plan Must Be Adopted for Multiemployer
Plans in Critical Status.--
(1) In general.--In any case in which a multiemployer
plan is in critical status for a plan year, the plan
sponsor, in accordance with this subsection--
(A) shall adopt a rehabilitation plan not
later than 240 days following the required date
for the actuarial certification of critical
status under subsection (b)(3)(A), and
(B) within 30 days after the adoption of the
rehabilitation plan--
(i) shall provide to the bargaining
parties 1 or more schedules showing
revised benefit structures, revised
contribution structures, or both,
which, if adopted, may reasonably be
expected to enable the multiemployer
plan to emerge from critical status in
accordance with the rehabilitation
plan, and
(ii) may, if the plan sponsor deems
appropriate, prepare and provide the
bargaining parties with additional
information relating to contribution
rates or benefit reductions,
alternative schedules, or other
information relevant to emerging from
critical status in accordance with the
rehabilitation plan.
The schedule or schedules described in subparagraph
(B)(i) shall reflect reductions in future benefit
accruals and adjustable benefits, and increases in
contributions, that the plan sponsor determines are
reasonably necessary to emerge from critical status.
One schedule shall be designated as the default
schedule and such schedule shall assume that there are
no increases in contributions under the plan other than
the increases necessary to emerge from critical status
after future benefit accruals and other benefits (other
than benefits the reduction or elimination of which are
not permitted under section 204(g)) have been reduced
to the maximum extent permitted by law.
(2) Exception for years after process begins.--
Paragraph (1) shall not apply to a plan year if such
year is in a rehabilitation plan adoption period or
rehabilitation period by reason of the plan being in
critical status for a preceding plan year. For purposes
of this section, such preceding plan year shall be the
initial critical year with respect to the
rehabilitation plan to which it relates.
(3) Rehabilitation plan.--For purposes of this
section--
(A) In general.--A rehabilitation plan is a
plan which consists of--
(i) actions, including options or a
range of options to be proposed to the
bargaining parties, formulated, based
on reasonably anticipated experience
and reasonable actuarial assumptions,
to enable the plan to cease to be in
critical status by the end of the
rehabilitation period and may include
reductions in plan expenditures
(including plan mergers and
consolidations), reductions in future
benefit accruals or increases in
contributions, if agreed to by the
bargaining parties, or any combination
of such actions, or
(ii) if the plan sponsor determines
that, based on reasonable actuarial
assumptions and upon exhaustion of all
reasonable measures, the plan can not
reasonably be expected to emerge from
critical status by the end of the
rehabilitation period, reasonable
measures to emerge from critical status
at a later time or to forestall
possible insolvency (within the meaning
of section 4245).
A rehabilitation plan must provide annual
standards for meeting the requirements of such
rehabilitation plan. Such plan shall also
include the schedules required to be provided
under paragraph (1)(B)(i) and if clause (ii)
applies, shall set forth the alternatives
considered, explain why the plan is not
reasonably expected to emerge from critical
status by the end of the rehabilitation period,
and specify when, if ever, the plan is expected
to emerge from critical status in accordance
with the rehabilitation plan.
(B) Updates to rehabilitation plan and
schedules.--
(i) Rehabilitation plan.--The plan
sponsor shall annually update the
rehabilitation plan and shall file the
update with the plan's annual report
under section 104.
(ii) Schedules.--The plan sponsor
shall annually update any schedule of
contribution rates provided under this
subsection to reflect the experience of
the plan.
(iii) Duration of schedule.--A
schedule of contribution rates provided
by the plan sponsor and relied upon by
bargaining parties in negotiating a
collective bargaining agreement shall
remain in effect for the duration of
that collective bargaining agreement.
(C) Imposition of schedule where failure to
adopt rehabilitation plan.--
(i) Initial contribution schedule.--
If--
(I) a collective bargaining
agreement providing for
contributions under a
multiemployer plan that was in
effect at the time the plan
entered critical status
expires, and
(II) after receiving one or
more schedules from the plan
sponsor under paragraph (1)(B),
the bargaining parties with
respect to such agreement fail
to adopt a contribution
schedule with terms consistent
with the rehabilitation plan
and a schedule from the plan
sponsor under paragraph
(1)(B)(i),
the plan sponsor shall implement the
schedule described in the last sentence
of paragraph (1) beginning on the date
specified in clause (iii).
(ii) Subsequent contribution
schedule.--If--
(I) a collective bargaining
agreement providing for
contributions under a
multiemployer plan in
accordance with a schedule
provided by the plan sponsor
pursuant to a rehabilitation
plan (or imposed under
subparagraph (C)(i)) expires
while the plan is still in
critical status, and
(II) after receiving one or
more updated schedules from the
plan sponsor under subparagraph
(B)(ii), the bargaining parties
with respect to such agreement
fail to adopt a contribution
schedule with terms consistent
with the updated rehabilitation
plan and a schedule from the
plan sponsor,
then the contribution schedule
applicable under the expired collective
bargaining agreement, as updated and in
effect on the date the collective
bargaining agreement expires, shall be
implemented by the plan sponsor
beginning on the date specified in
clause (iii).
(iii) Date of implementation.--The
date specified in this subparagraph is
the date which is 180 days after the
date on which the collective bargaining
agreement described in clause (i) or
(ii) expires.
(iv) Failure to make scheduled
contributions.--Any failure to make a
contribution under a schedule of
contribution rates provided under this
subsection shall be treated as a
delinquent contribution under section
515 and shall be enforceable as such.
(4) Rehabilitation period.--For purposes of this
section--
(A) In general.--The rehabilitation period
for a plan in critical status is the 10-year
period beginning on the first day of the first
plan year of the multiemployer plan following
the earlier of--
(i) the second anniversary of the
date of the adoption of the
rehabilitation plan, or
(ii) the expiration of the collective
bargaining agreements in effect on the
due date for the actuarial
certification of critical status for
the initial critical year under
subsection (a)(1) and covering, as of
such date at least 75 percent of the
active participants in such
multiemployer plan.
If a plan emerges from critical status as
provided under subparagraph (B) before the end
of such 10-year period, the rehabilitation
period shall end with the plan year preceding
the plan year for which the determination under
subparagraph (B) is made.
(B) Emergence.--
(i) In general.--A plan in critical
status shall remain in such status
until a plan year for which the plan
actuary certifies, in accordance with
subsection (b)(3)(A), that--
(I) the plan is not described
in one or more of the
subparagraphs in subsection
(b)(2) as of the beginning of
the plan year;
(II) the plan is not
projected to have an
accumulated funding deficiency
for the plan year or any of the
9 succeeding plan years,
without regard to the use of
the shortfall method but taking
into account any extension of
amortization periods under
section 304(d)(2) or section
304 (as in effect prior to the
enactment of the Pension
Protection Act of 2006); and
(III) the plan is not
projected to become insolvent
within the meaning of section
4245 for any of the 30
succeeding plan years.
(ii) Plans with certain amortization
extensions.--
(I) Special emergence rule.--
Notwithstanding clause (i), a
plan in critical status that
has an automatic extension of
amortization periods under
section 304(d)(1) shall no
longer be in critical status if
the plan actuary certifies for
a plan year, in accordance with
subsection (b)(3)(A), that--
(aa) the plan is not
projected to have an
accumulated funding
deficiency for the plan
year or any of the 9
succeeding plan years,
without regard to the
use of the shortfall
method but taking into
account any extension
of amortization periods
under section
304(d)(1); and
(bb) the plan is not
projected to become
insolvent within the
meaning of section 4245
for any of the 30
succeeding plan years,
regardless of whether the plan
is described in one or more of
the subparagraphs in subsection
(b)(2) as of the beginning of
the plan year.
(II) Reentry into critical
status.--A plan that emerges
from critical status under
subclause (I) shall not reenter
critical status for any
subsequent plan year unless--
(aa) the plan is
projected to have an
accumulated funding
deficiency for the plan
year or any of the 9
succeeding plan years,
without regard to the
use of the shortfall
method but taking into
account any extension
of amortization periods
under section 304(d);
or
(bb) the plan is
projected to become
insolvent within the
meaning of section 4245
for any of the 30
succeeding plan years.
(5) Rehabilitation plan adoption period.--For
purposes of this section, the term ``rehabilitation
plan adoption period'' means the period beginning on
the date of the certification under subsection
(b)(3)(A) for the initial critical year and ending on
the day before the first day of the rehabilitation
period.
(6) Limitation on reduction in rates of future
accruals.--Any reduction in the rate of future accruals
under the default schedule described in the last
sentence of paragraph (1) shall not reduce the rate of
future accruals below--
(A) a monthly benefit (payable as a single
life annuity commencing at the participant's
normal retirement age) equal to 1 percent of
the contributions required to be made with
respect to a participant, or the equivalent
standard accrual rate for a participant or
group of participants under the collective
bargaining agreements in effect as of the first
day of the initial critical year, or
(B) if lower, the accrual rate under the plan
on such first day.
The equivalent standard accrual rate shall be
determined by the plan sponsor based on the standard or
average contribution base units which the plan sponsor
determines to be representative for active participants
and such other factors as the plan sponsor determines
to be relevant. Nothing in this paragraph shall be
construed as limiting the ability of the plan sponsor
to prepare and provide the bargaining parties with
alternative schedules to the default schedule that
establish lower or higher accrual and contribution
rates than the rates otherwise described in this
paragraph.
(7) Automatic employer surcharge.--
(A) Imposition of surcharge.--Each employer
otherwise obligated to make contributions for
the initial critical year shall be obligated to
pay to the plan for such year a surcharge equal
to 5 percent of the contributions otherwise
required under the applicable collective
bargaining agreement (or other agreement
pursuant to which the employer contributes).
For each succeeding plan year in which the plan
is in critical status for a consecutive period
of years beginning with the initial critical
year, the surcharge shall be 10 percent of the
contributions otherwise so required.
(B) Enforcement of surcharge.--The surcharges
under subparagraph (A) shall be due and payable
on the same schedule as the contributions on
which the surcharges are based. Any failure to
make a surcharge payment shall be treated as a
delinquent contribution under section 515 and
shall be enforceable as such.
(C) Surcharge to terminate upon collective
bargaining agreement renegotiation.--The
surcharge under this paragraph shall cease to
be effective with respect to employees covered
by a collective bargaining agreement (or other
agreement pursuant to which the employer
contributes), beginning on the effective date
of a collective bargaining agreement (or other
such agreement) that includes terms consistent
with a schedule presented by the plan sponsor
under paragraph (1)(B)(i), as modified under
subparagraph (B) of paragraph (3).
(D) Surcharge not to apply until employer
receives notice.--The surcharge under this
paragraph shall not apply to an employer until
30 days after the employer has been notified by
the plan sponsor that the plan is in critical
status and that the surcharge is in effect.
(E) Surcharge not to generate increased
benefit accruals.--Notwithstanding any
provision of a plan to the contrary, the amount
of any surcharge under this paragraph shall not
be the basis for any benefit accrual under the
plan.
(8) Benefit adjustments.--
(A) Adjustable benefits.--
(i) In general.--Notwithstanding
section 204(g), the plan sponsor shall,
subject to the notice requirements in
subparagraph (C), make any reductions
to adjustable benefits which the plan
sponsor deems appropriate, based upon
the outcome of collective bargaining
over the schedule or schedules provided
under paragraph (1)(B)(i).
(ii) Exception for retirees.--Except
in the case of adjustable benefits
described in clause (iv)(III), the plan
sponsor of a plan in critical status
shall not reduce adjustable benefits of
any participant or beneficiary whose
benefit commencement date is before the
date on which the plan provides notice
to the participant or beneficiary under
subsection (b)(3)(D) for the initial
critical year.
(iii) Plan sponsor flexibility.--The
plan sponsor shall include in the
schedules provided to the bargaining
parties an allowance for funding the
benefits of participants with respect
to whom contributions are not currently
required to be made, and shall reduce
their benefits to the extent permitted
under this title and considered
appropriate by the plan sponsor based
on the plan's then current overall
funding status.
(iv) Adjustable benefit defined.--For
purposes of this paragraph, the term
``adjustable benefit'' means--
(I) benefits, rights, and
features under the plan,
including post-retirement death
benefits, 60-month guarantees,
disability benefits not yet in
pay status, and similar
benefits,
(II) any early retirement
benefit or retirement-type
subsidy (within the meaning of
section 204(g)(2)(A)) and any
benefit payment option (other
than the qualified joint and
survivor annuity), and
(III) benefit increases that
would not be eligible for a
guarantee under section 4022A
on the first day of initial
critical year because the
increases were adopted (or, if
later, took effect) less than
60 months before such first
day.
(B) Normal retirement benefits protected.--
Except as provided in subparagraph
(A)(iv)(III), nothing in this paragraph shall
be construed to permit a plan to reduce the
level of a participant's accrued benefit
payable at normal retirement age.
(C) Notice requirements.--
(i) In general.--No reduction may be
made to adjustable benefits under
subparagraph (A) unless notice of such
reduction has been given at least 30
days before the general effective date
of such reduction for all participants
and beneficiaries to--
(I) plan participants and
beneficiaries,
(II) each employer who has an
obligation to contribute
(within the meaning of section
4212(a)) under the plan, and
(III) each employee
organization which, for
purposes of collective
bargaining, represents plan
participants employed by such
an employer.
(ii) Content of notice.--The notice
under clause (i) shall contain--
(I) sufficient information to
enable participants and
beneficiaries to understand the
effect of any reduction on
their benefits, including an
estimate (on an annual or
monthly basis) of any affected
adjustable benefit that a
participant or beneficiary
would otherwise have been
eligible for as of the general
effective date described in
clause (i), and
(II) information as to the
rights and remedies of plan
participants and beneficiaries
as well as how to contact the
Department of Labor for further
information and assistance
where appropriate.
(iii) Form and manner.--Any notice
under clause (i)--
(I) shall be provided in a
form and manner prescribed in
regulations of the Secretary of
the Treasury, in consultation
with the Secretary,
(II) shall be written in a
manner so as to be understood
by the average plan
participant, and
(III) may be provided in
written, electronic, or other
appropriate form to the extent
such form is reasonably
accessible to persons to whom
the notice is required to be
provided.
The Secretary of the Treasury shall in
the regulations prescribed under
subclause (I) establish a model notice
that a plan sponsor may use to meet the
requirements of this subparagraph.
(9) Benefit suspensions for multiemployer plans in
critical and declining status.--
(A) In general.--Notwithstanding section
204(g) and subject to subparagraphs (B) through
(I), the plan sponsor of a plan in critical and
declining status may, by plan amendment,
suspend benefits which the sponsor deems
appropriate.
(B) Suspension of benefits.--
(i) Suspension of benefits defined.--
For purposes of this subsection, the
term ``suspension of benefits'' means
the temporary or permanent reduction of
any current or future payment
obligation of the plan to any
participant or beneficiary under the
plan, whether or not in pay status at
the time of the suspension of benefits.
(ii) Length of suspensions.--Any
suspension of benefits made under
subparagraph (A) shall remain in effect
until the earlier of when the plan
sponsor provides benefit improvements
in accordance with subparagraph (E) or
the suspension of benefits expires by
its own terms.
(iii) No liability.--The plan shall
not be liable for any benefit payments
not made as a result of a suspension of
benefits under this paragraph.
(iv) Applicability.--For purposes of
this paragraph, all references to
suspensions of benefits, increases in
benefits, or resumptions of suspended
benefits with respect to participants
shall also apply with respect to
benefits of beneficiaries or
alternative payees of participants.
(v) Retiree representative.--
(I) In general.--In the case
of a plan with 10,000 or more
participants, not later than 60
days prior to the plan sponsor
submitting an application to
suspend benefits, the plan
sponsor shall select a
participant of the plan in pay
status to act as a retiree
representative. The retiree
representative shall advocate
for the interests of the
retired and deferred vested
participants and beneficiaries
of the plan throughout the
suspension approval process.
(II) Reasonable expenses from
plan.--The plan shall provide
for reasonable expenses by the
retiree representative,
including reasonable legal and
actuarial support, commensurate
with the plan's size and funded
status.
(III) Special rule relating
to fiduciary status.--Duties
performed pursuant to subclause
(I) shall not be subject to
section 404(a). The preceding
sentence shall not apply to
those duties associated with an
application to suspend benefits
pursuant to subparagraph (G)
that are performed by the
retiree representative who is
also a plan trustee.
(C) Conditions for suspensions.--The plan
sponsor of a plan in critical and declining
status for a plan year may suspend benefits
only if the following conditions are met:
(i) Taking into account the proposed
suspensions of benefits (and, if
applicable, a proposed partition of the
plan under section 4233), the plan
actuary certifies that the plan is
projected to avoid insolvency within
the meaning of section 4245, assuming
the suspensions of benefits continue
until the suspensions of benefits
expire by their own terms or if no such
expiration date is set, indefinitely.
(ii) The plan sponsor determines, in
a written record to be maintained
throughout the period of the benefit
suspension, that the plan is still
projected to become insolvent unless
benefits are suspended under this
paragraph, although all reasonable
measures to avoid insolvency have been
taken (and continue to be taken during
the period of the benefit suspension).
In its determination, the plan sponsor
may take into account factors including
the following:
(I) Current and past
contribution levels.
(II) Levels of benefit
accruals (including any prior
reductions in the rate of
benefit accruals).
(III) Prior reductions (if
any) of adjustable benefits.
(IV) Prior suspensions (if
any) of benefits under this
subsection.
(V) The impact on plan
solvency of the subsidies and
ancillary benefits available to
active participants.
(VI) Compensation levels of
active participants relative to
employees in the participants'
industry generally.
(VII) Competitive and other
economic factors facing
contributing employers.
(VIII) The impact of benefit
and contribution levels on
retaining active participants
and bargaining groups under the
plan.
(IX) The impact of past and
anticipated contribution
increases under the plan on
employer attrition and
retention levels.
(X) Measures undertaken by
the plan sponsor to retain or
attract contributing employers.
(D) Limitations on suspensions.--Any
suspensions of benefits made by a plan sponsor
pursuant to this paragraph shall be subject to
the following limitations:
(i) The monthly benefit of any
participant or beneficiary may not be
reduced below 110 percent of the
monthly benefit which is guaranteed by
the Pension Benefit Guaranty
Corporation under section 4022A on the
date of the suspension.
(ii)(I) In the case of a participant
or beneficiary who has attained 75
years of age as of the effective date
of the suspension, not more than the
applicable percentage of the maximum
suspendable benefits of such
participant or beneficiary may be
suspended under this paragraph.
(II) For purposes of subclause (I),
the maximum suspendable benefits of a
participant or beneficiary is the
portion of the benefits of such
participant or beneficiary that would
be suspended pursuant to this paragraph
without regard to this clause;
(III) For purposes of subclause (I),
the applicable percentage is a
percentage equal to the quotient
obtained by dividing--
(aa) the number of months
during the period beginning
with the month after the month
in which occurs the effective
date of the suspension and
ending with the month during
which the participant or
beneficiary attains the age of
80, by
(bb) 60 months.
(iii) No benefits based on disability
(as defined under the plan) may be
suspended under this paragraph.
(iv) Any suspensions of benefits, in
the aggregate (and, if applicable,
considered in combination with a
partition of the plan under section
4233), shall be reasonably estimated to
achieve, but not materially exceed, the
level that is necessary to avoid
insolvency.
(v) In any case in which a suspension
of benefits with respect to a plan is
made in combination with a partition of
the plan under section 4233, the
suspension of benefits may not take
effect prior to the effective date of
such partition.
(vi) Any suspensions of benefits
shall be equitably distributed across
the participant and beneficiary
population, taking into account
factors, with respect to participants
and beneficiaries and their benefits,
that may include one or more of the
following:
(I) Age and life expectancy.
(II) Length of time in pay
status.
(III) Amount of benefit.
(IV) Type of benefit:
survivor, normal retirement,
early retirement.
(V) Extent to which
participant or beneficiary is
receiving a subsidized benefit.
(VI) Extent to which
participant or beneficiary has
received post-retirement
benefit increases.
(VII) History of benefit
increases and reductions.
(VIII) Years to retirement
for active employees.
(IX) Any discrepancies
between active and retiree
benefits.
(X) Extent to which active
participants are reasonably
likely to withdraw support for
the plan, accelerating employer
withdrawals from the plan and
increasing the risk of
additional benefit reductions
for participants in and out of
pay status.
(XI) Extent to which benefits
are attributed to service with
an employer that failed to pay
its full withdrawal liability.
(vii) In the case of a plan that
includes the benefits described in
clause (III), benefits suspended under
this paragraph shall--
(I) first, be applied to the
maximum extent permissible to
benefits attributable to a
participant's service for an
employer which withdrew from
the plan and failed to pay (or
is delinquent with respect to
paying) the full amount of its
withdrawal liability under
section 4201(b)(1) or an
agreement with the plan,
(II) second, except as
provided by subclause (III), be
applied to all other benefits
that may be suspended under
this paragraph, and
(III) third, be applied to
benefits under a plan that are
directly attributable to a
participant's service with any
employer which has, prior to
the date of enactment of the
Multiemployer Pension Reform
Act of 2014--
(aa) withdrawn from
the plan in a complete
withdrawal under
section 4203 and has
paid the full amount of
the employer's
withdrawal liability
under section
4201(b)(1) or an
agreement with the
plan, and
(bb) pursuant to a
collective bargaining
agreement, assumed
liability for providing
benefits to
participants and
beneficiaries of the
plan under a separate,
single-employer plan
sponsored by the
employer, in an amount
equal to any amount of
benefits for such
participants and
beneficiaries reduced
as a result of the
financial status of the
plan.
(E) Benefit improvements.--
(i) In general.--The plan sponsor
may, in its sole discretion, provide
benefit improvements while any
suspension of benefits under the plan
remains in effect, except that the plan
sponsor may not increase the
liabilities of the plan by reason of
any benefit improvement for any
participant or beneficiary not in pay
status by the first day of the plan
year for which the benefit improvement
takes effect, unless--
(I) such action is
accompanied by equitable
benefit improvements in
accordance with clause (ii) for
all participants and
beneficiaries whose benefit
commencement dates were before
the first day of the plan year
for which the benefit
improvement for such
participant or beneficiary not
in pay status took effect; and
(II) the plan actuary
certifies that after taking
into account such benefits
improvements the plan is
projected to avoid insolvency
indefinitely under section
4245.
(ii) Equitable distribution of
benefit improvements.--
(I) Limitation.--The
projected value of the total
liabilities for benefit
improvements for participants
and beneficiaries not in pay
status by the date of the first
day of the plan year in which
the benefit improvements are
proposed to take effect, as
determined as of such date, may
not exceed the projected value
of the liabilities arising from
benefit improvements for
participants and beneficiaries
with benefit commencement dates
prior to the first day of such
plan year, as so determined.
(II) Equitable distribution
of benefits.--The plan sponsor
shall equitably distribute any
increase in total liabilities
for benefit improvements in
clause (i) to some or all of
the participants and
beneficiaries whose benefit
commencement date is before the
date of the first day of the
plan year in which the benefit
improvements are proposed to
take effect, taking into
account the relevant factors
described in subparagraph
(D)(vi) and the extent to which
the benefits of the
participants and beneficiaries
were suspended.
(iii) Special rule for resumptions of
benefits only for participants in pay
status.--The plan sponsor may increase
liabilities of the plan through a
resumption of benefits for participants
and beneficiaries in pay status only if
the plan sponsor equitably distributes
the value of resumed benefits to some
or all of the participants and
beneficiaries in pay status, taking
into account the relevant factors
described in subparagraph (D)(vi).
(iv) Special rule for certain benefit
increases.--This subparagraph shall not
apply to a resumption of suspended
benefits or plan amendment which
increases liabilities with respect to
participants and beneficiaries not in
pay status by the first day of the plan
year in which the benefit improvements
took effect which--
(I) the Secretary of the
Treasury, in consultation with
the Pension Benefit Guaranty
Corporation and the Secretary
of Labor, determines to be
reasonable and which provides
for only de minimis increases
in the liabilities of the plan,
or
(II) is required as a
condition of qualification
under part I of subchapter D of
chapter 1 of subtitle A of the
Internal Revenue Code of 1986
or to comply with other
applicable law, as determined
by the Secretary of the
Treasury.
(v) Additional limitations.--Except
for resumptions of suspended benefits
described in clause (iii), the
limitations on benefit improvements
while a suspension of benefits is in
effect under this paragraph shall be in
addition to any other applicable
limitations on increases in benefits
imposed on a plan.
(vi) Definition of benefit
improvement.--For purposes of this
subparagraph, the term ``benefit
improvement'' means, with respect to a
plan, a resumption of suspended
benefits, an increase in benefits, an
increase in the rate at which benefits
accrue, or an increase in the rate at
which benefits become nonforfeitable
under the plan.
(F) Notice requirements.--
(i) In general.--No suspension of
benefits may be made pursuant to this
paragraph unless notice of such
proposed suspension has been given by
the plan sponsor concurrently with an
application for approval of such
suspension submitted under subparagraph
(G) to the Secretary of the Treasury
to--
(I) such plan participants
and beneficiaries who may be
contacted by reasonable
efforts,
(II) each employer who has an
obligation to contribute
(within the meaning of section
4212(a)) under the plan, and
(III) each employee
organization which, for
purposes of collective
bargaining, represents plan
participants employed by such
an employer.
(ii) Content of notice.--The notice
under clause (i) shall contain--
(I) sufficient information to
enable participants and
beneficiaries to understand the
effect of any suspensions of
benefits, including an
individualized estimate (on an
annual or monthly basis) of
such effect on each participant
or beneficiary,
(II) a description of the
factors considered by the plan
sponsor in designing the
benefit suspensions,
(III) a statement that the
application for approval of any
suspension of benefits shall be
available on the website of the
Department of the Treasury and
that comments on such
application will be accepted,
(IV) information as to the
rights and remedies of plan
participants and beneficiaries,
(V) if applicable, a
statement describing the
appointment of a retiree
representative, the date of
appointment of such
representative, identifying
information about the retiree
representative (including
whether the representative is a
plan trustee), and how to
contact such representative,
and
(VI) information on how to
contact the Department of the
Treasury for further
information and assistance
where appropriate.
(iii) Form and manner.--Any notice
under clause (i)--
(I) shall be provided in a
form and manner prescribed in
guidance by the Secretary of
the Treasury, in consultation
with the Pension Benefit
Guaranty Corporation and the
Secretary of Labor,
notwithstanding any other
provision of law,
(II) shall be written in a
manner so as to be understood
by the average plan
participant, and
(III) may be provided in
written, electronic, or other
appropriate form to the extent
such form is reasonably
accessible to persons to whom
the notice is required to be
provided.
(iv) Other notice requirement.--Any
notice provided under clause (i) shall
fulfill the requirement for notice of a
significant reduction in benefits
described in section 204(h).
(v) Model notice.--The Secretary of
the Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, shall in
the guidance prescribed under clause
(iii)(I) establish a model notice that
a plan sponsor may use to meet the
requirements of this subparagraph.
(G) Approval process by the secretary of the
treasury in consultation with the pension
benefit guaranty corporation and the secretary
of labor.--
(i) In general.--The plan sponsor of
a plan in critical and declining status
for a plan year that seeks to suspend
benefits must submit an application to
the Secretary of the Treasury for
approval of the suspensions of
benefits. If the plan sponsor submits
an application for approval of the
suspensions, the Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, shall
approve the application upon finding
that the plan is eligible for the
suspensions and has satisfied the
criteria of subparagraphs (C), (D),
(E), and (F).
(ii) Solicitation of comments.--Not
later than 30 days after receipt of the
application under clause (i), the
Secretary of the Treasury, in
consultation with the Pension Benefit
Guaranty Corporation and the Secretary
of Labor, shall publish a notice in the
Federal Register soliciting comments
from contributing employers, employee
organizations, and participants and
beneficiaries of the plan for which an
application was made and other
interested parties. The application for
approval of the suspension of benefits
shall be published on the website of
the Secretary of the Treasury.
(iii) Required action; deemed
approval.--The Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, shall
approve or deny any application for
suspensions of benefits under this
paragraph within 225 days after the
submission of such application. An
application for suspension of benefits
shall be deemed approved unless, within
such 225 days, the Secretary of the
Treasury notifies the plan sponsor that
it has failed to satisfy one or more of
the criteria described in this
paragraph. If the Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, rejects a
plan sponsor's application, the
Secretary of the Treasury shall provide
notice to the plan sponsor detailing
the specific reasons for the rejection,
including reference to the specific
requirement not satisfied. Approval or
denial by the Secretary of the Treasury
of an application shall be treated as a
final agency action for purposes of
section 704 of title 5, United States
Code.
(iv) Agency review.--In evaluating
whether the plan sponsor has met the
criteria specified in clause (ii) of
subparagraph (C), the Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, shall
review the plan sponsor's consideration
of factors under such clause.
(v) Standard for accepting plan
sponsor determinations.--In evaluating
the plan sponsor's application, the
Secretary of the Treasury shall accept
the plan sponsor's determinations
unless it concludes, in consultation
with the Pension Benefit Guaranty
Corporation and the Secretary of Labor,
that the plan sponsor's determinations
were clearly erroneous.
(H) Participant ratification process.--
(i) In general.--No suspension of
benefits may take effect pursuant to
this paragraph prior to a vote of the
participants of the plan with respect
to the suspension.
(ii) Administration of vote.--Not
later than 30 days after approval of
the suspension by the Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, under
subparagraph (G), the Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, shall
administer a vote of participants and
beneficiaries of the plan. Except as
provided in clause (v), the suspension
shall go into effect following the vote
unless a majority of all participants
and beneficiaries of the plan vote to
reject the suspension. The plan sponsor
may submit a new suspension application
to the Secretary of the Treasury for
approval in any case in which a
suspension is prohibited from taking
effect pursuant to a vote under this
subparagraph.
(iii) Ballots.--The plan sponsor
shall provide a ballot for the vote
(subject to approval by the Secretary
of the Treasury, in consultation with
the Pension Benefit Guaranty
Corporation and the Secretary of Labor)
that includes the following:
(I) A statement from the plan
sponsor in support of the
suspension.
(II) A statement in
opposition to the suspension
compiled from comments received
pursuant to subparagraph
(G)(ii).
(III) A statement that the
suspension has been approved by
the Secretary of the Treasury,
in consultation with the
Pension Benefit Guaranty
Corporation and the Secretary
of Labor.
(IV) A statement that the
plan sponsor has determined
that the plan will become
insolvent unless the suspension
takes effect.
(V) A statement that
insolvency of the plan could
result in benefits lower than
benefits paid under the
suspension.
(VI) A statement that
insolvency of the Pension
Benefit Guaranty Corporation
would result in benefits lower
than benefits paid in the case
of plan insolvency.
(iv) Communication by plan sponsor.--
It is the sense of Congress that,
depending on the size and resources of
the plan and geographic distribution of
the plan's participants, the plan
sponsor should take such steps as may
be necessary to inform participants
about proposed benefit suspensions
through in-person meetings, telephone
or internet-based communications,
mailed information, or by other means.
(v) Systemically important plans.--
(I) In general.--Not later
than 14 days after a vote under
this subparagraph rejecting a
suspension, the Secretary of
the Treasury, in consultation
with the Pension Benefit
Guaranty Corporation and the
Secretary of Labor, shall
determine whether the plan is a
systemically important plan. If
the Secretary of the Treasury,
in consultation with the
Pension Benefit Guaranty
Corporation and the Secretary
of Labor, determines that the
plan is a systemically
important plan, not later than
the end of the 90-day period
beginning on the date the
results of the vote are
certified, the Secretary of the
Treasury shall, notwithstanding
such adverse vote--
(aa) permit the
implementation of the
suspension proposed by
the plan sponsor; or
(bb) permit the
implementation of a
modification by the
Secretary of the
Treasury, in
consultation with the
Pension Benefit
Guaranty Corporation
and the Secretary of
Labor, of such
suspension (so long as
the plan is projected
to avoid insolvency
within the meaning of
section 4245 under such
modification).
(II) Recommendations.--Not
later than 30 days after a
determination by the Secretary
of the Treasury, in
consultation with the Pension
Benefit Guaranty Corporation
and the Secretary of Labor,
that the plan is systemically
important, the Participant and
Plan Sponsor Advocate selected
under section 4004 may submit
recommendations to the
Secretary of the Treasury with
respect to the suspension or
any revisions to the
suspension.
(III) Systemically important
plan defined.--
(aa) In general.--For
purposes of this
subparagraph, a
systemically important
plan is a plan with
respect to which the
Pension Benefit
Guaranty Corporation
projects the present
value of projected
financial assistance
payments exceeds
$1,000,000,000 if
suspensions are not
implemented.
(bb) Indexing.--For
calendar years
beginning after 2015,
there shall be
substituted for the
dollar amount specified
in item (aa) an amount
equal to the product of
such dollar amount and
a fraction, the
numerator of which is
the contribution and
benefit base
(determined under
section 230 of the
Social Security Act)
for the preceding
calendar year and the
denominator of which is
such contribution and
benefit base for
calendar year 2014. If
the amount otherwise
determined under this
item is not a multiple
of $1,000,000, such
amount shall be rounded
to the next lowest
multiple of $1,000,000.
(vi) Final authorization to
suspend.--In any case in which a
suspension goes into effect following a
vote pursuant to clause (ii) (or
following a determination under clause
(v) that the plan is a systemically
important plan), the Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, shall issue
a final authorization to suspend with
respect to the suspension not later
than 7 days after such vote (or, in the
case of a suspension that goes into
effect under clause (v), at a time
sufficient to allow the implementation
of the suspension prior to the end of
the 90-day period described in clause
(v)(I)).
(I) Judicial review.--
(i) Denial of application.--An action
by the plan sponsor challenging the
denial of an application for suspension
of benefits by the Secretary of the
Treasury, in consultation with the
Pension Benefit Guaranty Corporation
and the Secretary of Labor, may only be
brought following such denial.
(ii) Approval of suspension of
benefits.--
(I) Timing of action.--An
action challenging a suspension
of benefits under this
paragraph may only be brought
following a final authorization
to suspend by the Secretary of
the Treasury, in consultation
with the Pension Benefit
Guaranty Corporation and the
Secretary of Labor, under
subparagraph (H)(vi).
(II) Standards of review.--
(aa) In general.--A
court shall review an
action challenging a
suspension of benefits
under this paragraph in
accordance with section
706 of title 5, United
States Code.
(bb) Temporary
injunction.--A court
reviewing an action
challenging a
suspension of benefits
under this paragraph
may not grant a
temporary injunction
with respect to such
suspension unless the
court finds a clear and
convincing likelihood
that the plaintiff will
prevail on the merits
of the case.
(iii) Restricted cause of action.--A
participant or beneficiary affected by
a benefit suspension under this
paragraph shall not have a cause of
action under this title.
(iv) Limitation on action to suspend
benefits.--No action challenging a
suspension of benefits following the
final authorization to suspend or the
denial of an application for suspension
of benefits pursuant to this paragraph
may be brought after one year after the
earliest date on which the plaintiff
acquired or should have acquired actual
knowledge of the existence of such
cause of action.
(J) Special rule for emergence from critical
status.--A plan certified to be in critical and
declining status pursuant to projections made
under subsection (b)(3) for which a suspension
of benefits has been made by the plan sponsor
pursuant to this paragraph shall not emerge
from critical status under paragraph (4)(B),
until such time as--
(i) the plan is no longer certified
to be in critical or endangered status
under paragraphs (1) and (2) of
subsection (b), and
(ii) the plan is projected to avoid
insolvency under section 4245.
(f) Rules for Operation of Plan During Adoption and
Rehabilitation Period.--
(1) Compliance with rehabilitation plan.--
(A) In general.--A plan may not be amended
after the date of the adoption of a
rehabilitation plan under subsection (e) so as
to be inconsistent with the rehabilitation
plan.
(B) Special rules for benefit increases.--A
plan may not be amended after the date of the
adoption of a rehabilitation plan under
subsection (e) so as to increase benefits,
including future benefit accruals, unless the
plan actuary certifies that such increase is
paid for out of additional contributions not
contemplated by the rehabilitation plan, and,
after taking into account the benefit increase,
the multiemployer plan still is reasonably
expected to emerge from critical status by the
end of the rehabilitation period on the
schedule contemplated in the rehabilitation
plan.
(2) Restriction on lump sums and similar benefits.--
(A) In general.--Effective on the date the
notice of certification of the plan's critical
status for the initial critical year under
subsection (b)(3)(D) is sent, and
notwithstanding section 204(g), the plan shall
not pay--
(i) any payment, in excess of the
monthly amount paid under a single life
annuity (plus any social security
supplements described in the last
sentence of section 204(b)(1)(G)), to a
participant or beneficiary whose
annuity starting date (as defined in
section 205(h)(2)) occurs after the
date such notice is sent,
(ii) any payment for the purchase of
an irrevocable commitment from an
insurer to pay benefits, and
(iii) any other payment specified by
the Secretary of the Treasury by
regulations.
(B) Exception.--Subparagraph (A) shall not
apply to a benefit which under section 203(e)
may be immediately distributed without the
consent of the participant or to any makeup
payment in the case of a retroactive annuity
starting date or any similar payment of
benefits owed with respect to a prior period.
(3) Special rules for plan adoption period.--During
the period beginning on the date of the certification
under subsection (b)(3)(A) for the initial critical
year and ending on the date of the adoption of a
rehabilitation plan--
(A) the plan sponsor may not accept a
collective bargaining agreement or
participation agreement with respect to the
multiemployer plan that provides for--
(i) a reduction in the level of
contributions for any participants,
(ii) a suspension of contributions
with respect to any period of service,
or
(iii) any new direct or indirect
exclusion of younger or newly hired
employees from plan participation, and
(B) no amendment of the plan which increases
the liabilities of the plan by reason of any
increase in benefits, any change in the accrual
of benefits, or any change in the rate at which
benefits become nonforfeitable under the plan
may be adopted unless the amendment is required
as a condition of qualification under part I of
subchapter D of chapter 1 of the Internal
Revenue Code of 1986 or to comply with other
applicable law.
(g) Adjustments Disregarded in Withdrawal Liability
Determination.--
(1) Benefit reduction.--Any benefit reductions under
subsection (e)(8) or (f) or benefit reductions or
suspensions while in critical and declining status
under subsection (e)(9)), unless the withdrawal occurs
more than ten years after the effective date of a
benefit suspension by a plan in critical and declining
status, shall be disregarded in determining a plan's
unfunded vested benefits for purposes of determining an
employer's withdrawal liability under section 4201.
(2) Surcharges.--Any surcharges under subsection
(e)(7) shall be disregarded in determining the
allocation of unfunded vested benefits to an employer
under section 4211 and in determining the highest
contribution rate under section 4219(c), except for
purposes of determining the unfunded vested benefits
attributable to an employer under section 4211(c)(4) or
a comparable method approved under section 4211(c)(5).
(3) Contribution increases required by funding
improvement or rehabilitation plan.--
(A) In general.--Any increase in the
contribution rate (or other increase in
contribution requirements unless due to
increased levels of work, employment, or
periods for which compensation is provided)
that is required or made in order to enable the
plan to meet the requirement of the funding
improvement plan or rehabilitation plan shall
be disregarded in determining the allocation of
unfunded vested benefits to an employer under
section 4211 and in determining the highest
contribution rate under section 4219(c), except
for purposes of determining the unfunded vested
benefits attributable to an employer under
section 4211(c)(4) or a comparable method
approved under section 4211(c)(5).
(B) Special rules.--For purposes of this
paragraph, any increase in the contribution
rate (or other increase in contribution
requirements) shall be deemed to be required or
made in order to enable the plan to meet the
requirement of the funding improvement plan or
rehabilitation plan except for increases in
contribution requirements due to increased
levels of work, employment, or periods for
which compensation is provided or additional
contributions are used to provide an increase
in benefits, including an increase in future
benefit accruals, permitted by subsection
(d)(1)(B) or (f)(1)(B).
(4) Emergence from endangered or critical status.--In
the case of increases in the contribution rate (or
other increases in contribution requirements unless due
to increased levels of work, employment, or periods for
which compensation is provided) disregarded pursuant to
paragraph (3), this subsection shall cease to apply as
of the expiration date of the collective bargaining
agreement in effect when the plan emerges from
endangered or critical status. Notwithstanding the
preceding sentence, once the plan emerges from critical
or endangered status, increases in the contribution
rate disregarded pursuant to paragraph (3) shall
continue to be disregarded in determining the highest
contribution rate under section 4219(c) for plan years
during which the plan was in endangered or critical
status.
(5) Simplified calculations.--The Pension Benefit
Guaranty Corporation shall prescribe simplified methods
for the application of this subsection in determining
withdrawal liability and payment amounts under section
4219(c).
(h) Expedited Resolution of Plan Sponsor Decisions.--If,
within 60 days of the due date for adoption of a funding
improvement plan under subsection (c) or a rehabilitation plan
under subsection (e), the plan sponsor of a plan in endangered
status or a plan in critical status has not agreed on a funding
improvement plan or rehabilitation plan, then any member of the
board or group that constitutes the plan sponsor may require
that the plan sponsor enter into an expedited dispute
resolution procedure for the development and adoption of a
funding improvement plan or rehabilitation plan.
(i) Nonbargained Participation.--
(1) Both bargained and nonbargained employee-
participants.--In the case of an employer that
contributes to a multiemployer plan with respect to
both employees who are covered by one or more
collective bargaining agreements and employees who are
not so covered, if the plan is in endangered status or
in critical status, benefits of and contributions for
the nonbargained employees, including surcharges on
those contributions, shall be determined as if those
nonbargained employees were covered under the first to
expire of the employer's collective bargaining
agreements in effect when the plan entered endangered
or critical status.
(2) Nonbargained employees only.--In the case of an
employer that contributes to a multiemployer plan only
with respect to employees who are not covered by a
collective bargaining agreement, this section shall be
applied as if the employer were the bargaining party,
and its participation agreement with the plan were a
collective bargaining agreement with a term ending on
the first day of the plan year beginning after the
employer is provided the schedule or schedules
described in subsections (c) and (e).
(j) Definitions; Actuarial Method.--For purposes of this
section--
(1) Bargaining party.--The term ``bargaining party''
means--
(A)(i) except as provided in clause (ii), an
employer who has an obligation to contribute
under the plan; or
(ii) in the case of a plan described under
section 404(c) of the Internal Revenue Code of
1986, or a continuation of such a plan, the
association of employers that is the employer
settlor of the plan; and
(B) an employee organization which, for
purposes of collective bargaining, represents
plan participants employed by an employer who
has an obligation to contribute under the plan.
(2) Funded percentage.--The term ``funded
percentage'' means the percentage equal to a fraction--
(A) the numerator of which is the value of
the plan's assets, as determined under section
304(c)(2), and
(B) the denominator of which is the accrued
liability of the plan, determined using
actuarial assumptions described in section
304(c)(3).
(3) Accumulated funding deficiency.--The term
``accumulated funding deficiency'' has the meaning
given such term in section 304(a).
(4) Active participant.--The term ``active
participant'' means, in connection with a multiemployer
plan, a participant who is in covered service under the
plan.
(5) Inactive participant.--The term ``inactive
participant'' means, in connection with a multiemployer
plan, a participant, or the beneficiary or alternate
payee of a participant, who--
(A) is not in covered service under the plan,
and
(B) is in pay status under the plan or has a
nonforfeitable right to benefits under the
plan.
(6) Pay status.--A person is in pay status under a
multiemployer plan if--
(A) at any time during the current plan year,
such person is a participant or beneficiary
under the plan and is paid an early, late,
normal, or disability retirement benefit under
the plan (or a death benefit under the plan
related to a retirement benefit), or
(B) to the extent provided in regulations of
the Secretary of the Treasury, such person is
entitled to such a benefit under the plan.
(7) Obligation to contribute.--The term ``obligation
to contribute'' has the meaning given such term under
section 4212(a).
(8) Actuarial method.--Notwithstanding any other
provision of this section, the actuary's determinations
with respect to a plan's normal cost, actuarial accrued
liability, and improvements in a plan's funded
percentage under this section shall be based upon the
unit credit funding method (whether or not that method
is used for the plan's actuarial valuation).
(9) Plan sponsor.--In the case of a plan described
under section 404(c) of the Internal Revenue Code of
1986, or a continuation of such a plan, the term ``plan
sponsor'' means the bargaining parties described under
paragraph (1).
(10) Benefit commencement date.--The term ``benefit
commencement date'' means the annuity starting date (or
in the case of a retroactive annuity starting date, the
date on which benefit payments begin).
(k) Special Rules for Plans Receiving Pension Rehabilitation
Loans.--
(1) Determination of withdrawal liability.--
(A) In general.--If any employer
participating in a plan at the time the plan
receives a loan under section 4(a) of the
Rehabilitation for Multiemployer Pensions Act
of 2019 withdraws from the plan before the end
of the 30-year period beginning on the date of
the loan, the withdrawal liability of such
employer shall be determined--
(i) by applying section 4219(c)(1)(D)
as if the plan were terminating by the
withdrawal of every employer from the
plan, and
(ii) by determining the value of
nonforfeitable benefits under the plan
at the time of the deemed termination
by using the interest assumptions
prescribed for purposes of section
4044, as prescribed in the regulations
under section 4281 in the case of such
a mass withdrawal.
(B) Annuity contracts and investment
portfolios purchased with loan funds.--Annuity
contracts purchased and portfolios implemented
under section 4(d)(3) of the Rehabilitation for
Multiemployer Pensions Act of 2019 shall not be
taken into account in determining the
withdrawal liability of any employer under
subparagraph (A), but the amount equal to the
greater of--
(i) the benefits provided under such
contracts or portfolios to participants
and beneficiaries, or
(ii) the remaining payments due on
the loan under section 4(a) of such
Act,
shall be so taken into account.
(2) Coordination with funding requirements.--In the
case of a plan which receives a loan under section 4(a)
of the Rehabilitation for Multiemployer Pensions Act of
2019--
(A) annuity contracts purchased and
portfolios implemented under section 4(d)(3) of
such Act, and the benefits provided to
participants and beneficiaries under such
contracts or portfolios, shall not be taken
into account in determining minimum required
contributions under section 302,
(B) payments on the interest and principal
under the loan, and any benefits owed in excess
of those provided under such contracts or
portfolios, shall be taken into account as
liabilities for purposes of such section, and
(C) if such a portfolio is projected due to
unfavorable investment or actuarial experience
to be unable to fully satisfy the liabilities
which it covers, the amount of the liabilities
projected to be unsatisfied shall be taken into
account as liabilities for purposes of such
section.
* * * * * * *
TITLE IV--PLAN TERMINATION INSURANCE
* * * * * * *
SUBTITLE E--SPECIAL PROVISIONS FOR MULTIEMPLOYER PLANS
* * * * * * *
Part 4--Financial Assistance
FINANCIAL ASSISTANCE
Sec. 4261. (a) If, upon receipt of an application for
financial assistance under section 4245(f) or section 4281(d),
the corporation verifies that the plan is or will be insolvent
and unable to pay basic benefits when due, the corporation
shall provide the plan financial assistance in an amount
sufficient to enable the plan to pay basic benefits under the
plan.
(b)(1) Financial assistance shall be provided under such
conditions as the corporation determines are equitable and are
appropriate to prevent unreasonable loss to the corporation
with respect to the plan.
(2) A plan which has received financial assistance shall
repay the amount of such assistance to the corporation on
reasonable terms consistent with regulations prescribed by the
corporation.
(c) Pending determination of the amount described in
subsection (a), the corporation may provide financial
assistance in such amounts as it considers appropriate in order
to avoid undue hardship to plan participants and beneficiaries.
(d)(1) The plan sponsor of a multiemployer plan--
(A) which is in critical and declining status (within
the meaning of section 305(b)(6)) as of the date of the
enactment of this subsection, or with respect to which
a suspension of benefits has been approved under
section 305(e)(9) as of such date;
(B) which, as of such date of enactment, is in
critical status (within the meaning of section
305(b)(2)), has a funded percentage of less than 40
percent (as determined for purposes of section 305),
and has a ratio of active to inactive participants
which is less than 2 to 3; or
(C) which is insolvent for purposes of section 418E
of the Internal Revenue Code of 1986 as of such date of
enactment, if the plan became insolvent after December
16, 2014, and has not been terminated;
and which is applying for a loan under section 4(a) of the
Rehabilitation for Multiemployer Pensions Act of 2019 may also
apply to the corporation for financial assistance under this
subsection, by jointly submitting such applications in
accordance with section 4(d)(2) of such Act. The application
for financial assistance under this subsection shall
demonstrate, based on projections by the plan actuary, that
after the receipt of the anticipated loan amount under section
4(a) of such Act, the plan will still become (or remain)
insolvent within the 30-year period beginning on the date of
the loan.
(2) In reviewing an application under paragraph (1), the
corporation shall review the demonstrations and assumptions
submitted with the loan application under section 4(c) of the
Rehabilitation for Multiemployer Pensions Act of 2019 and
provide guidance regarding such assumptions prior to approving
any application for financial assistance under this subsection.
The corporation may deny any application if the assumptions and
determinations are unreasonable, or inconsistent with rules
issued by the corporation, and the plan and the corporation are
unable to reach agreement on such assumptions and
determinations.
(3) In the case of a plan described in paragraph (1)(A) or
(1)(B), the financial assistance provided pursuant to such
application under this subsection shall be the amount
(determined by the plan actuary and submitted on the
application) equal to the sum of--
(A) the percentage of benefits of participants and
beneficiaries of the plan in pay status at the time of
the application, and
(B) the percentage of future benefits to which
participants who have separated from service but are
not yet in pay status are entitled,
which, if such percentage were paid by the corporation in
combination with the loan, would allow the plan to avoid
projected insolvency. Such amount shall not exceed the maximum
guaranteed benefit with respect to all participants and
beneficiaries of the plan under sections 4022A and 4022B. For
this purpose, the maximum guaranteed benefit amount shall be
determined by disregarding any loan available from the Pension
Rehabilitation Administration and shall be determined as if the
plan were insolvent on the date of the application. Further,
the present value of the maximum guaranteed benefit amount with
respect to such participants and beneficiaries may be
calculated in the aggregate, rather than by reference to the
benefit of each such participant or beneficiary.
(4) In the case of a plan described in paragraph (1)(C), the
financial assistance provided pursuant to such application
under this subsection shall be the amount (determined by the
plan actuary and submitted on the application) which, if such
amount were paid by the corporation in combination with the
loan and any other assistance being provided to the plan by the
corporation at the time of the application, would enable the
plan to emerge from the projected insolvency.
(5)(A) Except as provided in subparagraph (B), the
corporation shall provide the financial assistance under this
subsection only in such amounts as the corporation determines,
at the time of approval and at the beginning of each plan year
beginning thereafter during the period of assistance, are
necessary for the plan to avoid insolvency during the 5 plan
year period beginning with the current plan year.
(B) In the case of a plan described in paragraph (1)(C), the
financial assistance under this subsection shall be provided in
a lump sum if deemed necessary by the corporation, and in no
case later than December 31, 2020.
(6) Subsections (b) and (c) shall apply to financial
assistance under this subsection as if it were provided under
subsection (a), except that the terms for repayment under
subsection (b)(2) shall not require the financial assistance to
be repaid before the date on which the loan under section 4(a)
of the Rehabilitation for Multiemployer Pensions Act of 2019 is
repaid in full.
(7) The corporation may forgo repayment of the financial
assistance provided under this subsection if necessary to avoid
any suspension of the accrued benefits of participants.
* * * * * * *
MINORITY VIEWS
Introduction
American workers and retirees who participate in
multiemployer defined benefit pension plans have good reason to
be deeply concerned about the current state of the
multiemployer pension plan system. Seventy-five percent of
multiemployer pension plan participants are in plans that are
less than 50 percent funded.\1\ Ninety-five percent of
multiemployer pension plan participants are in plans that are
less than 60 percent funded.\2\ Approximately 130 multiemployer
plans that have promised benefits to over 1 million workers and
retirees are projected to fail in the next 10 years, but the
vast majority of plans are already insolvent by general
business standards.
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\1\2016 PBGC Data Tables, Table M-13, https://www.pbgc.gov/sites/
default/files/2016_pension_data_tables.pdf.
\2\Id.
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The Pension Benefit Guaranty Corporation's (PBGC)
multiemployer insurance program is currently facing a $54
billion deficit.\3\ In six years, the program will be
completely out of money.\4\ The Committee on Education and
Labor (the Committee) has a long history of bipartisan,
solution-oriented work on multiemployer pension oversight and
reform. Historically, the Committee has led Congress toward
fiscally responsible solutions that give certainty and peace of
mind to workers, retirees, and taxpayers alike. Therefore, it
is extremely unfortunate and highly unusual that Committee
Democrats unilaterally drafted and approved a sweeping,
expensive, and deeply flawed bill that purports to address the
underfunding crisis in multiemployer plans by creating perverse
incentives to underfund these plans further.
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\3\PBGC, 2018 Annual Report, https://www.pbgc.gov/sites/default/
files/pbgc-annual-report-2018.pdf.
\4\CBO, Options to Improve the Financial Condition of the Pension
Benefit Guaranty Corporation's Multiemployer Program (Aug. 2, 2016).
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The partisan approach taken by the Committee majority
started with the lack of a legislative hearing to examine the
bill. The approach ended with a Committee markup in which
Democrats amended the bill while Republicans were prevented
from doing so. As such, Committee Republicans were denied any
opportunity for meaningful input in the legislative process, an
affront that runs counter to the norms of Congressional and
Committee procedure and has resulted in an exceptionally flawed
and extremely partisan bill.
H.R. 397, the Rehabilitation for Multiemployer Pensions
Act, establishes a new government agency within the Department
of the Treasury (Treasury) to issue long-term low-interest
loans directly to failing multiemployer defined benefit pension
plans that may be forgiven if they are unable to be repaid. At
markup, the Committee majority passed this bill without the
benefit of a score from the nonpartisan Congressional Budget
Office (CBO). A 2018 CBO estimate projected that similar
legislation to bail out multiemployer pension plans could cost
American taxpayers more than $100 billion.\5\ The Committee's
failure to analyze the reported legislation thoroughly has
denied Members of the Committee and the public a proper
understanding of the implications of putting American taxpayers
on the hook for failed promises in private multiemployer
defined benefit pension plans. Furthermore, it is
unconscionable that the reported bill walks back bipartisan
reforms to the multiemployer pension plan system led by a
previous Republican Chairman and Democrat Ranking Member of
this Committee.
---------------------------------------------------------------------------
\5\CBO, Preliminary Analysis of S. 2147, The Butch-Lewis Act of
2017, as Introduced (July 16, 2018).
---------------------------------------------------------------------------
Finally, H.R. 397 fails to address the very heart of the
problem--the structural flaws in multiemployer defined benefit
pension plans that have put American workers and retirees at
such egregious and unsustainable risk. Unfortunately, the
Committee's majority chose to push forward a dangerously
irresponsible ``quick-fix'' that will do severe damage rather
than work to achieve bipartisan, fiscally responsible, and
forward-looking solutions to protect workers and retirees and
to prevent mass plan insolvencies from ever happening again.
Background on H.R. 397
The Committee does not consider H.R. 397 in a vacuum.\6\
This legislation must be viewed in context with the history--
both practical and legislative--of multiemployer defined
benefit pension plans.
---------------------------------------------------------------------------
\6\The issues facing multiemployer defined benefit pension plans
are too vast and complex to rely on the very limited record from a
single subcommittee hearing titled ``The Cost of Inaction: Why Congress
Must Address the Multiemployer Pension Crisis,'' which was held on
March 7, 2019. Because no Committee hearing was held on H.R. 397, the
minority views rely on past Congressional testimony and Committee
action. Due to the lack of any legislative vetting in the 116th
Congress, the minority views also draw from testimony before the Joint
Select Committee on the Solvency of Multiemployer Pension Plans formed
in the 115th Congress, testimony before this Committee in years past,
and other outside sources.
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Multiemployer plans were first regulated by the Labor
Management Relations Act of 1947 (Taft-Hartley). Taft-Hartley
requires plan assets to be placed in a trust for the ``sole and
exclusive benefit'' of employees\7\ and requires that the joint
board of trustees manage the plan's assets.\8\ Partly in
response to several high-profile failures of defined benefit
pension plans, Congress later enacted the Employee Retirement
Income Security Act of 1974 (ERISA), which governs employee
benefit plans, including multiemployer pension plans. ERISA
sets minimum standards for employee pension plans by way of a
``comprehensive and reticulated'' regulatory scheme.\9\ For
example, ERISA regulates the way benefits are credited to
workers and when those benefits vest, as well as standards for
participant eligibility and plan funding requirements. ERISA
also contains participant disclosure requirements regarding
plan details, and it established PBGC, the federal backstop for
defined benefit plans. At the time of PBGC's creation,
multiemployer insurance premiums were set at a flat-rate of
$0.50 per participant per year.
---------------------------------------------------------------------------
\7\Taft-Hartley Sec. 302(c)(5), 29 U.S.C. Sec. 186(c)(5).
\8\Taft-Hartley Sec. 302(c)(5)(B), 29 U.S.C. Sec. 186(c)(5)(B).
\9\See Nachman Corp. v. Pension Benefit Guar. Corp., 446 U.S. 359,
361 (1980).
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In 1980, in response to threats to the financial stability
of PBGC's multiemployer insurance program, which at the time
faced an $8.5 million deficit that threatened millions of
participants with loss of their benefits,\10\ and to prevent
plan insolvencies, Congress passed the Multiemployer Pension
Plan Amendments Act of 1980 (MPPAA). MPPAA introduced the
withdrawal liability requirement and the ``last-man standing''
rule. Withdrawal liability is assessed when a contributing
employer exits the plan to ensure the funding of benefits for
these workers; withdrawal liability is intended to cover the
exiting employer's share of the plan's underfunding, if any.
MPPAA also included modest increases to multiemployer plans'
flat-rate PBGC premium--gradually increasing the flat rate to
$2.60 per participant per year by 1988, to cover a maximum
annual guarantee of $5,850 to a participant with 30 years of
service.\11\
---------------------------------------------------------------------------
\10\U.S. Gov't Accountability Off., HRD-86-4, 1980 Multiemployer
Pension Amendments: Overview of Effects and Issues 3 (1986), https://
www.gao.gov/assets/150/144036.pdf.
\11\MPPAA change to ERISA Sec. 4022A, 29 U.S.C.Sec. 1322a.
---------------------------------------------------------------------------
Over time, weaknesses in the withdrawal liability rules as
established under MPPAA became evident.\12\ For example,
withdrawal liability may be insufficient to cover the
difference between the value of the promises made by the
employer and the contributions made by the employer or may be
far more than that value. Withdrawal liability payments are
made in annual contributions based on past contribution rates.
Those annual payments end after 20 years regardless of whether
they cover the employer's proportional share of the
underfunding, except in cases of mass withdrawal. When an
employer leaves a plan without paying its full share of
withdrawal liability, it leaves behind ``orphan'' liabilities
for which remaining employers must take responsibility. These
weaknesses can negatively impact plans' funding levels or lead
to the exit of more employers seeking to avoid the resulting
increase in required plan contributions.\13\ In turn,
deterioration in plan funding levels have severe negative
impacts on PBGC.
---------------------------------------------------------------------------
\12\U.S. Gov't Accountability Off., HRD-85-16, Effects of
Liabilities Assessed Employers Withdrawing From Multiemployer Pension
Plans (1985); U.S. Gov't Accountability Off., HRD-86-4, 1980
Multiemployer Pension Amendments: Overview of Effects and Issues 10-15
(1986).
\13\PBGC, Multiemployer Pension Plans: Report to Congress Required
by the Pension Protection Act of 2006 15-23 (Jan. 23, 2013).
---------------------------------------------------------------------------
In 2000, PBGC's multiemployer insurance program had a net
positive position of $267 million. That year, the flat-rate
insurance premiums multiemployer plans owed to PBGC remained at
only $2.60 per participant per year, to cover a maximum annual
guarantee that was increased from $5,850 to $12,870 for a
participant with 30 years of service. By 2003, PBGC's
multiemployer insurance program had a net deficit--from which
it has yet to emerge--of $261 million.\14\ By 2006, this
deficit had almost tripled to $739 million.\15\
---------------------------------------------------------------------------
\14\2016 PBGC Data Tables, Tables M-1, M-15, and M-16, https://
www.pbgc.gov/sites/default/files/2016_pension_data_tables.pdf.
\15\Id.
---------------------------------------------------------------------------
In 2006, Congress adopted the Pension Protection Act of
2006 (PPA) on a bipartisan basis. The legislation passed the
House by a vote of 279-131 and the Senate by a vote of 93-
5.\16\ PPA made significant changes to multiemployer plan
funding rules, including ``zone rules'' designed to address
plan underfunding.\17\ A plan's zone status is based on its
funded ratio at the beginning of the plan year and the plan's
projections of its ability to meet minimum funding requirements
and to remain solvent in the future. Generally, trustees of an
``endangered status'' or ``critical status'' plan must adopt a
``funding improvement plan'' or ``rehabilitation plan,''
respectively, to improve the plan's financial health. If the
bargaining parties agree, a critical-status underfunded plan
could reduce or eliminate early retirement subsidies and other
``adjustable'' benefits (e.g., disability payments or early
retirement subsidies) for those not yet retired. But perhaps
most importantly, PPA waived required contributions for plans
claiming they could not afford such contributions.
---------------------------------------------------------------------------
\16\Pension Protection Act of 2006, Pub. L. No. 109-280.
\17\These rules are found in PPA Sec. 202 and ERISA Sec. 305. For
purposes of these rules, plans are categorized based on the plan's
funded status (known as ``zone'' status) and required to meet certain
benchmarks to address underfunding.
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By 2014, PBGC's net deficit had more than quintupled from
the previous year's $8.3 billion--to $42.4 billion.\18\ That
year, the Committee led Congress in developing and passing the
bipartisan Multiemployer Pension Reform Act (MPRA), which made
several important changes to the rules governing multiemployer
plans. MPRA eliminated the increased withdrawal liability that
employers face as a result of increased contributions required
by PPA,\19\ increased flat rate per capita PBGC premiums from
$12 per participant per year in 2014 to $26 in 2015 (and
indexed for inflation thereafter), and added a new ``critical
and declining'' zone status for plans that meet the
requirements for critical status and, in addition, are
projected to become insolvent within the next 20 years.
---------------------------------------------------------------------------
\18\2016 PBGC Data Tables, Table M-1 https://www.pbgc.gov/sites/
default/files/2016_pension_data_tables.pdf.
\19\To help underfunded plans improve, employers often are required
to pay increased contributions as a result of the plan's red-zone
``rehabilitation plan.'' In turn, this increases the employer's
withdrawal liability. MPRA changed the way that withdrawal liability is
calculated to eliminate this penalty on a prospective basis on
increased contributions that result from a rehabilitation plan.
---------------------------------------------------------------------------
Under MPRA, plans in critical and declining status, subject
to certain constraints, may apply to Treasury to suspend the
benefit promises they have made down to the level that is
expected to be payable from the plan's current and future
resources. A benefit suspension may temporarily or permanently
reduce current or future payment obligations of the plan to a
participant or beneficiary under the plan, regardless of
whether the benefits are in pay status. Plans with more than
10,000 participants that intend to cut vested benefits are
required to appoint a ``retiree representative'' to advocate on
behalf of retirees. Trustees also are required to abide by
certain participant protections. For example, benefits cannot
be reduced below 110 percent of the PBGC guarantee;
participants who are 80 or older at the time of the suspension
will see no cut; participants between 75 and 80 see a
relatively smaller cut; disability pensions are exempt; and
plans must only cut to the extent necessary to avoid
insolvency.
In general, plans may only suspend benefits to the MPRA-
protected benefit level if such action is sufficient to enable
the plan to remain solvent. Once the trustees agree to a plan
for suspensions, they are required to submit an application to
the Treasury. If Treasury approves the trustees' proposal, the
participants are given the ability to veto the plan. Fifty
percent of all the plan's participants must vote to reject the
judgment of the trustees and Treasury. Notwithstanding the
vote, if PBGC's expected loss with respect to the plan exceeds
$1 billion or more in benefit payments, the suspensions will go
into effect, subject to Treasury's modification. However, in
large part due to a determination by the Obama administration,
these tools cannot prevent insolvency for two of the largest
plans expected to fail: the United Mine Workers of America 1974
Pension Plan and the Central States' Teamsters Plan.\20\
---------------------------------------------------------------------------
\20\Editorial, Treasury's Teamsters Bailout Ploy, Wall St. J. (May
15, 2016). Because the United Mine Workers' plan already features more
modest benefits (in many cases already below the PBGC guarantee level),
without better PBGC funding, MPRA by itself will likely not provide the
tools necessary to save the plan. The Senate Finance Committee reported
legislation in 2016 to shore up the plan using funds from the Abandoned
Mine Reclamation Fund and taxpayers, but it did not pass the Senate. In
May 2016, Treasury rejected the first application under MPRA by Central
States for benefits suspension, and the plan subsequently decided not
to refile.
---------------------------------------------------------------------------
As this political failure left plans without recourse and
as the multiemployer system showed its most staggering numbers
to date--$638 billion system-wide underfunding and a $65
billion net deficit in PBGC's multiemployer program--in
February 2018, the Bipartisan Budget Act of 2018 established a
Joint Select Committee on Solvency of Multiemployer Pension
Plans (Joint Select Committee) which was tasked with providing
recommendations and legislative language to improve the
solvency of multiemployer pension plans and the PBGC by a
statutory deadline. The Joint Select Committee, made up of four
Republican and four Democrat House Members and four Republican
and four Democrat Senators, held public hearings and private
briefings to examine the issue closely. The Joint Select
Committee provided an important forum to highlight the myriad
reasons why multiemployer pensions are in such dire straits and
reviewed substantive proposals to address and ameliorate the
pending insolvency of the PBGC and the multiemployer pension
plan system. However, the Joint Select Committee was not able
to agree on a legislative solution to address the vast
underfunding and looming insolvency of many multiemployer plans
and the PBGC's multiemployer insurance program by the December
2018 statutory deadline.
Today, multiemployer plans pay a flat-rate PBGC insurance
premium of $29 per participant per year to cover a maximum
annual guarantee of $12,870 for a participant with 30 years of
service. Unfortunately, PBGC's deficit continues to grow due to
the continued decay of funding levels in the plans it insures.
Although the plans have attributed the funding decline in large
part to investment losses, declining industry, and demographic
shifts in these plans, the dire financial position of the plans
must also include a recognition of mismanagement by the
trustees, who could have, and were required by the law to,
avoided subjecting the plan to the risk of such
occurrences.\21\ Study of the continued deterioration of
multiemployer defined benefit plans has revealed several key
areas of plan weaknesses and a need for significant structural
and operational changes to these plans.
---------------------------------------------------------------------------
\21\Alicia H. Munnell et al., Ctr. For Retirement Res. at Boston
C., Multiemployer Pension Plans: Current Status and Future Trends
(2017), https://crr.bc.edu/wpcontent/uploads/2017/12/
multiemployer_specialreport_1_4_2018.pdf.
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As noted by a witness before the Joint Select Committee,
``the inevitable consequence of inadequate contributions, risky
investment choices, and the withdrawal liability provisions is
a funding crisis.''\22\ Time has shown that without appropriate
intervention the problem will worsen, leaving the workers and
retirees that participate in multiemployer defined benefit
plans with even fewer benefits fully funded by those who
promised them. It is against this backdrop that the Committee
considered H.R. 397.
---------------------------------------------------------------------------
\22\How the Multiemployer Pension System Affects Stakeholders:
Hearing Before the J. Select Comm. on Solvency of Multiemployer Pension
Plans., 115th Cong. (July 25, 2018) (written statement of James P.
Naughton, Assistant Professor, Kellogg Sch. of Mgmt., Nw. Univ., at 5)
[hereinafter Naughton JSC Statement].
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Negative Consequences of H.R. 397
H.R. 397 is an appalling departure from the bipartisan
reforms to the multiemployer defined benefit plan system which
in the past have been enacted with protections for plan
participants and beneficiaries. In stark contrast, this
sweeping legislation is drafted to avoid any necessary and
responsible changes on the part of plan trustees and their
approach to managing these vast pension funds. Committee
Democrats confirmed this notion by refusing to consider any
Republican amendments to improve safeguards for plan
participants and beneficiaries under the legislation. Committee
Republicans are justifiably concerned about the severely
negative consequences of the bill for active workers, retirees,
taxpayers, and the future of defined benefit plan management,
including the following:
H.R. 397 INCLUDES NO STRUCTURAL OR OPERATIONAL REFORMS TO PROTECT
WORKERS AND RETIREES
To develop solutions that appropriately protect workers and
retirees affected by the current situation and to prevent its
recurrence, we need to know what allowed the severe
underfunding in multiemployer plans to accumulate. The
underfunding crisis facing multiemployer plans is as simple as
it is complex: the plans cannot afford to pay the benefits they
promised because they have not collected sufficient
contributions to fund those promises.
(1) Measuring pension liabilities
A fundamental task of plan trustees is to collect
sufficient contributions from participating employers. Together
with investment earnings, these contributions must safely
provide the benefits that trustees, employers, and unions
promise plan participants. To accomplish this, plan trustees
should collect contributions equal to the present value of the
benefits they are promising, rather than counting on above-
market investment returns or contributions from future workers.
Simply put, the minimum required contribution for
multiemployer plans is supposed to be an amount expected to pay
for benefits attributable to the current year's service
(``normal cost'') and to amortize the plan's unfunded
liability. Under ERISA and the Tax Code, multiemployer plan
actuaries are required to set reasonable assumptions and
funding methods\23\ to measure actuarial liabilities and to
determine funding costs. More specifically, the actuary must
determine that the assumptions used are ``reasonable'' and
offer the actuary's ``best estimate of anticipated experience
under the plan.''\24\ Historically most multiemployer actuaries
have generally selected a funding interest rate assumption to
discount future liabilities based on the expected investment
rate of return on the plan's assets and the underlying asset
allocation. Economists generally believe that the rate of
return on assets is not connected to the measurement of
liabilities.\25\
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\23\The plan's actuary may select among reasonable liability
funding methods that assign costs among the different periods of
service worked by the plan's participants. Once chosen, the plan must
get approval from the IRS to change the method. The IRS periodically
issues guidance allowing or requiring certain types of changes.
\24\29 U.S.C. Sec. 1084(c)(3).
\25\Financial regulators require companies to value liabilities
based on market bond yields, not on expected rates of return.
Economists ``almost universally'' believe that this is the appropriate
method for valuing pension liabilities. The Multiemployer Pension Plan
System: Recent Reforms and Current Challenges: Hearing Before the Sen.
Comm. on Finance, 114th Cong. (Mar. 1, 2016) (written statement of
Andrew G. Biggs, Resident Scholar, American Enterprise Institute).
James Naughton testified to the Joint Select Committee that Statement
of Financial Accounting Standards No. 87 (SFAS87), Employers'
Accounting for Pensions, has required financial reporting for pension
liabilities to be measured ``using a discount rate that reflects the
rate at which the obligation to pay the pension benefits can be settled
rather than the expected investment return on the pension assets.''
Naughton JSC Statement, supra note 22, at 2 n.3. SFAS87 requires that
employers look to ``rates of return on high-quality fixed-income
investments currently available and expected to be available during the
period to maturity of the pension benefits.'' Statement of Fin. Acct.
Standards No. 87, Fin. Acct. Standards Board 17 (Dec. 1985), https://
www.fasb.org/jsp/FASB/Document_C/
DocumentPage?cid=1218220127991&acceptedDisclaimer=true. The ``PBGC
rate'' used by PBGC to discount its liabilities consists of the
discount rates used by life insurance companies to measure such
liabilities. PBGC, 2018 Annual Report, note 6, https://www.pbgc.gov/
sites/default/files/pbgc-annual-report-2018.pdf. More specifically, the
PBGC rate reflects the weighted blend of rates that insurance companies
would use taking into account the duration of PBGC's liabilities.
---------------------------------------------------------------------------
Defined benefit pensions are based on the premise that
participants should be able to rely on pension promises in
retirement; in other words that such promises bear little, or
no, risk to participants. To ensure these promises are secure,
proper measurement of pension liabilities is necessary. In
testimony before the Subcommittee on Health, Employment, Labor,
and Pensions (HELP) on March 7, 2019, Dr. James Naughton
explained that multiemployer plans essentially provide annuity
promises to participants but attempt to fund those promises at
a fraction of the market cost. Plan trustees collect ``a
fraction of the value of [the] annuity benefit, hoping that it
can recoup the difference from future generations of union
members or through exemplary investment performance.''\26\ For
example, the Joint Select Committee heard from a contributing
employer whose plan assumes an average rate of return 1.5
points higher than its average returns in the latest bull
market, and additionally ignores the plan's historical trend to
assume that hours worked by active participants will not
decline.\27\ Joshua Rauh additionally testified before the
Joint Select Committee that for workers to fully count on
getting the pension promised them, the appropriate measurement
of such a secure promise must be based on the discount rate on
Treasury bonds matching the duration of the promise.\28\
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\26\The Cost of Inaction: Why Congress Must Address the
Multiemployer Pension Crisis: Hearing Before the Subcomm. on Health,
Emp't, Labor, & Pensions of the H. Comm. on Educ. & Labor, 116th Cong.
(Mar. 7, 2019) (written statement of James P. Naughton, Assistant
Professor, Kellogg Sch. of Mgmt., Nw. Univ., at 3) [hereinafter
Naughton HELP Statement].
\27\Employer Perspectives on Multiemployer Pension Plans: J. Select
Comm. on Solvency of Multiemployer Pension Plans, 115th Cong. (June 13,
2018) (written statement of Burke Blackman, President, Egger Steel Co.,
at 2).
\28\How the Multiemployer Pension System Affects Stakeholders:
Hearing Before the J. Select Comm. on Solvency of Multiemployer Pension
Plans., 115th Cong. (July 25, 2018) (written statement of Joshua D.
Rauh, Senior Fellow & Dir. of Research, Hoover Inst., Stanford Univ.,
at 6).
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A multiemployer plan's funding assumptions are also used to
determine the plan's funded percentage and certify its funded
``zone'' status (explained infra). Two plans with the same
market value of assets and future benefit payment streams can
have markedly different funded percentages or funded statuses,
depending on the interest rates they use since the ability to
adopt more risky asset allocations, along with associated
higher expected rates of return, allows the plans to disclose
different funded ratios. Some argue that using a more
conservative interest rate to discount liabilities to achieve a
more accurate measurement of those liabilities would result in
higher required plan contributions and drive plans currently
considered to be healthy into one of the unhealthy zone
statuses. However, as noted by Dr. Charles Blahous in his
testimony before the HELP Subcommittee, ``a pension plan's
liabilities are what they are; this reality is not changed by a
policy desire to have a less onerous funding requirement.''\29\
Dr. Naughton agreed, stating that ``the costs will be higher
because the reported costs in the past were far lower than the
economic value of the promised pension benefits.''\30\ An
inaccurate measurement of plan liabilities additionally does
not facilitate an accurate comparison of the funded statuses of
plans for government and other interested parties that monitor
the condition of multiemployer plans.
---------------------------------------------------------------------------
\29\The Cost of Inaction: Why Congress Must Address the
Multiemployer Pension Crisis: Hearing Before the Subcomm. on Health,
Emp't, Labor, & Pensions of the H. Comm. on Educ. & Labor, 116th Cong.
(Mar. 7, 2019) (written statement of Charles P. Blahous, J. Fish &
Lillian F. Smith Chair, Senior Research Strategist, Mercatus Ctr.,
George Mason Univ., at 9) [hereinafter Blahous Statement].
\30\Naughton HELP Statement, supra note 26, at 5.
---------------------------------------------------------------------------
Instead of using conservative estimates of the price of
pension promises to ensure the promised benefits will be
funded, most multiemployer plans attempt to provide these
benefits at a much lower price by investing in assets they hope
will provide higher returns than low-risk investments. Although
plans may actually earn high investment returns, by taking this
risky approach, plan trustees also expose the plan's
participants to the downside risk that the plan's investments
will not be sufficient to pay pensions as they come due. If
plans are willing and able to respond to pensions becoming
underfunded by taking whatever corrective measures are
necessary, then plans could provide promised annuities even if
their funding strategy does not work as intended. However, in
practice, while many plans have attempted to address
underfunding by requiring the bargaining parties to negotiate
higher plan contributions and by decreasing future accruals,
many plans have not sufficiently addressed the underfunding and
instead have become increasingly underfunded.\31\
---------------------------------------------------------------------------
\31\Naughton JSC Statement, supra note 22, at 2-4.
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(2) Responsibility for plan losses
Employers sponsoring multiemployer plans receive a
competitive advantage over employers sponsoring single-employer
plans in that employers in multiemployer plans make much
smaller contributions for the same pension promise.\32\ This
advantage is premised on testimony before Congress by the
multiemployer plans that benefits in these plans were much
safer than benefits in single-employer plans because in
multiemployer plans, employers are jointly and severally liable
for the pension promises made by other employers.\33\
---------------------------------------------------------------------------
\32\Naughton HELP Statement, supra note 26, at 3.
\33\James A. Wooten, The Employee Retirement Income Security Act of
1974: A Political History 140-44.
---------------------------------------------------------------------------
Although contributing employers to a multiemployer plan are
at least nominally responsible for all plan liabilities, the
withdrawal liability rules often allow employers to withdraw
without paying their share of the plan's unfunded liabilities.
A withdrawing employer must make annual contributions equal to
the employer's highest contribution rate in the prior 10 years
multiplied by the employer's average contribution base in the
three consecutive years in the prior 10 with the highest bases.
Those annual payments end after 20 years regardless of whether
they cover the employer's proportional share of the
underfunding except in cases of mass withdrawal. In mass
withdrawal, those annual payments last indefinitely until the
employer's proportional share of the underfunding is met, but
they still do not cover liability in many cases because they
are without interest. The failure of multiemployer plans to
accurately measure liabilities or recognize and quickly pay
down underfunding exacerbates those limitations. The withdrawal
liability amount also bears no relationship to the difference
between the value of the pensions promised to participants of
the withdrawing employer and the contributions made by the
employer. This leads to unpredictable withdrawal liability
amounts that may be either insufficient to cover the difference
between the value of the promises and contributions made by the
employer or amounts that may be far greater than that. But
because employers can withdraw from a plan without paying their
share of the underfunding in the plan, withdrawals often lead
to more underfunding.
As illustrated above, the existing withdrawal liability
rules are complex and opaque. Employers, especially small
employers, have little if any insight into plan underfunding or
the risks that plans will become underfunded in the future, or
the degree to which that underfunding translates into
withdrawal liability. Dr. Rauh explained in his testimony
before the Joint Select Committee that ``the size of withdrawal
liability for remaining employers is in part so large because
of the terms under which prior employer participants were
allowed to withdraw from the plans.''\34\
---------------------------------------------------------------------------
\34\Rauh Statement, supra note 22, at 9.
---------------------------------------------------------------------------
Another systemic problem for multiemployer plans is that
withdrawal liability is linked to past contribution rates, and
as such it is difficult for underfunded plans to address
underfunding by raising contribution rates as employers can
choose to leave plans and effectively lock in the lower older
rates. Because plans face these constraints on the ability to
recover from underfunding, it is even more vital to the
protection of participant benefits that plan trustees manage
the plans in a way to avoid becoming underfunded in the first
place.
(3) Rules for severely underfunded plans
Another significant problem with the multiemployer system
is that when plans become underfunded, even if employers do not
withdraw, some plan trustees effectively decide to leave
underfunding largely unaddressed and continue to collect
contributions that are insufficient to cover interest on the
underfunding. As described below, plans claiming they cannot
meet required contributions, even on the basis of undervalued
liabilities, are exempt from collecting required contributions
and instead merely have to take ``reasonable measures'' to
improve a plan's financing. The premise of any set of rules
requiring pension promises to be funded is that sufficient
contributions must be collected, regardless of whether a
collective bargaining agreement provides for such sufficient
contributions.
Under the PPA, multiemployer plans that claim they are
unable to meet required contributions or are otherwise in
critical status can receive a waiver from those contributions.
There are no objective criteria used to determine whether a
plan can afford required contributions. Such plans are under a
requirement to take ``reasonable measures'' to improve funding
levels, or if that is not reasonable, to delay insolvency. But
many such plans fail to reduce, or even pay interest on,
underfunding.
In testimony before the Joint Select Committee, Dr. Joshua
Rauh explained two separate standards for determining whether a
plan is collecting sufficient contributions: he described plans
as ``treading water'' when annual contributions at least cover
the cost of new benefits and interest on the plan's unfunded
liability; in contrast, a ``more stringent standard'' would
require that contributions cover the cost of new benefits and
some ``progress towards paying down the unfunded
liability.''\35\ By adjusting the assumptions used to measure
liabilities, plans that are merely ``treading water'' can seem
like they are meeting the ``more stringent standard.''\36\
---------------------------------------------------------------------------
\35\Id. at 1.
\36\Dr. Rauh estimated that on a fair market value basis, only 17
percent of plans are treading water, and less than 2 percent of plans
are meeting the more stringent standard.
---------------------------------------------------------------------------
In 2015, critical and declining plans had non-withdrawal
liability contributions of only $1.286 billion, while the value
of new promises on a Treasury yield curve basis was $1.491
billion.\37\ If plan trustees allow the bargaining parties
merely to make contributions sufficient to meet new costs, then
plans are not operating in a way that requires employers, so
long as they do not withdraw from the plan, to make good on
plan promises. Thus, although employers are nominally jointly
and severally liable for all plan promises, as a practical
matter plans are not holding employers responsible for plan
promises, including promises specifically made by that
employer.
---------------------------------------------------------------------------
\37\PBGC analysis of 5500 data, pursuant to a request for technical
assistance.
---------------------------------------------------------------------------
If multiemployer plans were subject to stricter funding
rules from the outset, they would be much less likely to become
so underfunded that they claim required contributions are
unaffordable. In fact, some ``green zone'' plans\38\ collect
contributions less than the fair market value of new promises,
which inevitably leads to chronic underfunding over time.\39\
Green zone plans collected contributions $2.3 billion short of
those required under current law in 2015.
---------------------------------------------------------------------------
\38\Plans that do not fall into the endangered, critical, or
critical and declining status are sometimes referred to as ``green
zone'' plans.
\39\In 2015, green zone plans had contributions of just $16.3
billion to cover $17.9 billion in new promises on a Treasury yield
curve basis.
---------------------------------------------------------------------------
As described previously, required contributions are
determined based on the cost of new promises made in the
current plan year and an amortized portion of unfunded
liabilities. Despite the ability to control the cost of
contributions, multiemployer plans generally continue to make
promises even when they cannot meet minimum required
contributions--that is, promises in excess of what they can
afford.\40\ Trustees of some plans less than 60 percent funded,
or projected to be insolvent, allow the plan to continue
promising benefits to active workers above the PBGC guarantee
level. They do this even though PBGC's multiemployer program is
also projected to become insolvent and therefore unable to meet
its guarantee, by 2025.\41\ Under current rules, even
multiemployer plans that have already run out of money and are
receiving PBGC assistance to pay retirees may continue to make
new promises that they will have no ability to pay. This
creates false expectations for plan participants and interferes
with workers' ability to plan for retirement accurately.
---------------------------------------------------------------------------
\40\In contrast, single-employer plans that cannot meet required
contributions must terminate. Such plans may not make new pension
promises. In addition, single-employer plans less than 60% funded may
not make new promises.
\41\PBGC, 2018 Annual Report, https://www.pbgc.gov/sites/default/
files/pbgc-annual-report-2018.pdf.
---------------------------------------------------------------------------
There are several fundamental flaws in the structure of
multiemployer plans that have allowed underfunding to
accumulate, leading to the current crisis: 1) The vast majority
of multiemployer plans significantly underestimate the cost of
the pension promises they are making; 2) There is a high level
of uncertainty as to which employers, if any, are responsible
for making good on pension promises should plans become
underfunded which is why clear and transparent rules as to who
bears responsibility for funding pension promises are needed to
ensure that those promises will be appropriately funded and
kept; and, 3) The rules applicable to severely underfunded
plans give plan trustees greater discretion over plan funding
instead of less and have allowed underfunding in these plans to
continue to grow.
H.R. 397 does nothing to reform the multiemployer pension
plan system to stop these risky and unsustainable plan
practices. Instead, the legislation maintains the current-law
funding rules that have allowed these severely underfunded
plans to continue to make pension promises in excess of what
they can afford, even if it is extremely unlikely that the plan
trustees can make good on promises previously made, let alone
make good on new promises. H.R. 397 does a great disservice to
the retirees and workers who were promised benefits as plan
underfunding will become even more severe and widespread if
these flaws are not corrected.
H.R. 397 FAILS TO ENSURE THE CONTINUATION OF A SELF-SUFFICIENT PBGC
INSURANCE PROGRAM
As of September 30, 2018, PBGC's multiemployer program had
a $53.9 billion deficit--$56.23 billion in liabilities,
compared to $2.3 billion in assets. This only measures account
liabilities from plans that have already run out of assets to
pay promised benefits and plans that are likely to do so in the
next decade. This deficit does not include liabilities from
plans that may run out of assets to pay promised benefits after
the next decade, no matter their level of unfunded liabilities.
PBGC's multiemployer insurance program is funded entirely
by annual premiums paid by each multiemployer pension plan, and
its guarantees are not backed by taxpayer dollars. Premium
levels are set by Congress. For 2019, the PBGC premium is a
flat-rate $29 per participant. In 2018, PBGC received $303
million in premium revenue and paid $153 million in financial
assistance to 81 multiemployer plans.\42\ PBGC's annual
financial assistance payments are projected to rise more
rapidly than premium revenue, reaching an estimated $2.5
billion by 2025 while premium revenue stays below $500 million.
By 2025, however, assets in the multiemployer insurance fund
will likely be exhausted. For several years, PBGC has reported
that premiums are insufficient to cover the multiemployer
program guarantees.\43\
---------------------------------------------------------------------------
\42\PBGC, 2018 Annual Report 12, https://www.pbgc.gov/sites/
default/files/pbgc-annual-report-2018.pdf.
\43\PBGC, FY 2015 Projections Report 8, https://www.pbgc.gov/sites/
default/files/legacy/docs/Projections-Report-2015.pdf; PBGC FY 2016
Projections Report 11-12, https://www.pbgc.gov/sites/default/files/fy-
2016-projections-report-final-signed.pdf; PBGC, FY 2017 Projections
Report 10-11, https://www.pbgc.gov/sites/default/files/fy-2017-
projections-report.pdf.
---------------------------------------------------------------------------
Throughout PBGC's history, its obligations have not been
backed by federal funding,\44\ and Congress revoked PBGC's
limited authority to borrow from the Treasury in a 2012 bill
signed into law by President Obama. PBGC's guarantee and
premium levels are set by Congress rather than by the insurance
agency itself as would be the case in the private sector. When
multiemployer plans are insolvent and unable to pay benefits,
the PBGC steps in to provide financial assistance in the form
of loans that are rarely paid back.\45\
---------------------------------------------------------------------------
\44\ERISA 4002 Sec. 1302(g)(2); 29 U.S.C. Sec. 1302(g)(2).
\45\While PBGC guarantees single-employer benefits up to $67,295
for a 65-year old, multiemployer benefits are only insured up to
$12,870 annually for a retiree of normal retirement age with 30 years
of service.
---------------------------------------------------------------------------
Measuring PBGC's finances, even for the single-employer
program, is very difficult. Over a dozen studies commissioned
by Congress in the Moving Ahead for Progress in the 21st
Century Act (MAP-21) and conducted by the Brookings Institution
and the Pension Research Council concluded that PBGC generally
underestimates the degree of the agency's downside risk.\46\ A
2005 CBO study concluded that PBGC's single-employer program
was about twice as underfunded as measured by PBGC at the
time.\47\
---------------------------------------------------------------------------
\46\Jeffrey R. Brown et al., Brookings Inst., A Review of the
Pension Benefit Guaranty Corporation Pension Insurance Modeling System
(2013), https://www.brookings.edu/wp-content/uploads/2016/06/PBGC-
Review-Brown-Elliott-Gordon-Hammond-FINAL-09112013.pdf; Olivia S.
Mitchell, Wharton Sch., Univ. of PA., Technical Review Panel for the
PIMS Model: Final Report (Sept. 2013), https://www.pbgc.gov/documents/
PIMS/WP2013-07-OSM.pdf.
\47\CBO, The Risk Exposure of the Pension Benefit Guaranty
Corporation (2005), https://www.cbo.gov/sites/default/files/cbofiles/
ftpdocs/66xx/doc6646/09-15-pbgc.pdf.
---------------------------------------------------------------------------
But the multiemployer program is even harder to estimate
because of the much more complex and uncertain rules regarding
required contributions and the participation of many
employers--and that would be the case even if plans were
reporting required information. Current reporting by plans
leaves out crucial information such as the identity of, and
contributions by, each contributing employer, as well as the
projected benefit payment schedule of the plans on a year-by-
year basis. A 2016 CBO study found that the fair value of
PBGC's deficit was almost twice as large as reported by PBGC at
the time. PBGC's reports have severely underestimated PBGC's
future exposure. PBGC's 2008 annual report found PBGC's
reasonably possible exposure to be $30 million.\48\ The
reasonably possible exposure is PBGC's projection of its
financial position 10 years into the future.\49\ By 2018, PBGC
had booked about $55 billion in additional liabilities. PBGC's
2009 annual report projected a mean multiemployer program
deficit of $4 billion in 2019 and that in 95 percent of
scenarios a 2019 deficit no worse than $14.5 billion.\50\ But,
as of PBGC's 2018 annual report, the multiemployer program
faces a $54 billion deficit.\51\
---------------------------------------------------------------------------
\48\PBGC, 2008 Annual Report, https://www.pbgc.gov/documents/
2008_annual_report.pdf.
\49\Id. note 9.
\50\PBGC, 2009 Annual Report, https://www.pbgc.gov/documents/
2009_annual_report.pdf.
\51\PBGC, 2018 Annual Report 27, https://www.pbgc.gov/sites/
default/files/pbgc-annual-report-2018.pdf.
---------------------------------------------------------------------------
For 2018, PBGC projected there was an additional $9.4
billion in reasonably possible exposure from plans that may
start requiring financial assistance in the 10 years beginning
in 2028.\52\ This estimate of PBGC's exposure does not include
liabilities associated with plans that may start needing
financial assistance more than 20 years from now. Thus, the
liabilities booked by PBGC in its current financial position
(taking into account plans already receiving financial
assistance or expected to start receiving financial assistance
in the next 10 years) and its projected financial position
(taking into account plans projected to start needing financial
assistance in the 10 years after that) only includes 60 percent
of critical and declining plans, 6 percent of critical plans,
1.5 percent of endangered plans, and 0.5 percent of other
plans. These plans, most of which are severely underfunded on a
market basis, contain the vast majority (about $538 billion) of
multiemployer plans' unfunded liabilities of $638 billion.\53\
Any legislative solution considered by Congress should include
long-term reforms that consider the risk posed by plans not
expected to need financial assistance in the next 20 years.
H.R. 397 fails in this regard.
---------------------------------------------------------------------------
\52\Id. at 29.
\53\Data from PBGC provided pursuant to a request for technical
assistance.
---------------------------------------------------------------------------
Bipartisan proposals to improve the PBGC multiemployer
program's finances and to put PBGC on a self-sustainable path
forward have been recommended by both the current and previous
administrations. H.R. 397 abandons these recommendations and
takes a radical and risky approach far removed from the
responsible premium increases that have proved successful to
stabilize PBGC's single-employer program. Instead, the bill
inappropriately expands PBGC's role in providing financial
assistance while for the first time requiring federal taxpayers
to support financial assistance provided only through its
multiemployer insurance program.
H.R. 397 CREATES NEW INCENTIVES TO CONTINUE RISKY PLAN PRACTICES THAT
ALLOW UNDERFUNDING TO GROW
A concern for underfunded multiemployer plans is the risk
of ``negative amortization''--that is, digging into a deeper
financial hole. To avoid this, the plan must collect
contributions, in addition to those needed to fund new
benefits, equal to interest on the underfunding.\54\
Contributions should be made to avoid negative amortization but
should also be sufficient to pay down the plan's underfunding
gradually so that future benefits that the plan has promised
are protected. Because multiemployer plan contributions are
negotiated through collective bargaining, it is difficult for
plans to quickly respond to such situations that may demand
increased contributions.
---------------------------------------------------------------------------
\54\Hearing on Private Employer Defined Benefit Pension Plans:
Hearing Before the Subcomm. on Select Revenue Measures of the H. Comm.
on Ways & Means, 113th Cong. (2014) (statement of Jeremy Gold, ). For
2016, multiemployer plans had negative amortization of $14.8 billion,
$10 billion of that in green zone plans. 5500 filings by multiemployer
plans for 2016, as measured on a ``current liability'' basis.
---------------------------------------------------------------------------
Since PBGC's multiemployer insurance program entered a
deficit in 2003, that deficit has continued to grow, spurred on
by the drastically increasing amount of underfunding in the
multiemployer plans it insures. According to the most recent
PBGC data, based on the 2015 plan year, system-wide
multiemployer plans are only 43 percent funded when measured
using the PBGC rate.\55\ H.R. 397, by propping up this clearly
unsustainable system without enacting reforms to set plans on
the right track going forward, encourages risky plan behaviors
that resulted in these underfunding extremes.
---------------------------------------------------------------------------
\55\2016 PBGC Data Tables, Table M-9, https://www.pbgc.gov/sites/
default/files/2016_pension_data_tables.pdf.
---------------------------------------------------------------------------
By adopting H.R. 397, Committee Democrats chose a dangerous
route that Dr. Blahous warned in his testimony would ``cause
multiemployer pension underfunding to soar, as a clear
incentive would have been established for plan sponsors to
forego adequate pension funding.''\56\ This creates a perilous
reality for participants in multiemployer plans other than the
134 plans carved out for special assistance under H.R. 397, and
for active workers in loan-recipient plans.
---------------------------------------------------------------------------
\56\Blahous Statement, supra note 29, at 10.
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H.R. 397 WILL COST AMERICAN TAXPAYERS BILLIONS OF DOLLARS
H.R. 397 establishes a new government agency within the
Treasury, the Pension Rehabilitation Administration (PRA), to
issue long-term low-interest loans to failing multiemployer
defined benefit plans. The new loan program also establishes a
dodgy, biased, and fiscally irresponsible loan structure and
equally flawed payment terms for certain pension plans. Under
the bill, unless plans elect an alternate repayment option,
interest-only payments would be due for the first 29 years of
the loan, with a lump-sum payment of the full principal owed in
year 30. Remarkably, the loans would be forgiven if they are
unable to be repaid. Over the loan period, a recipient plan may
continue to promise new benefits, allowing its liabilities to
grow. A loan recipient that has previously been approved for
benefit suspensions that would put the plan on a sustainable
track back to solvency under current law must reinstate all
benefits to levels the plan cannot afford and submit
retroactive payments for benefit suspensions that already went
into effect.
There are essentially no limits on the loan amounts
available to plans as loans are authorized to cover all
liabilities for participants and beneficiaries in pay status as
well as all liabilities for terminated vested benefits at the
time the loan is made, without regard to any benefit
suspensions. Contrary to responsible legislating and regular
order, CBO did not release a score of H.R. 397 before the
Committee markup. However, CBO's preliminary analysis in July
2018 of a nearly identical bill estimated that the legislation
could increase the federal budget deficit by more than $100
billion over 10 years alone. H.R. 397 provides extreme
deference to the brand-new federal agency known as the PRA in
setting loan terms, evaluating loan applications, and
renegotiating loan terms upon default. It is highly
inappropriate that Committee Democrats would advance complex
and unreviewed legislation that will have tremendous impact on
businesses, workers, retirees, and taxpayers, without knowing
the cost.
Committee Procedural Failure
Prior to the Committee markup of H.R. 397 the majority
failed to examine H.R. 397 and avoided a thorough vetting of
the myriad complex issues raised by the bill. After failing to
hold any hearings on H.R. 397, Chairman Scott submitted his
amended bill to the minority only 48 hours prior to the markup
and then proceeded to block Republican Members from debating
H.R. 397 and from offering any amendments to the bill during
the markup.\57\ This outrageous effort to muzzle the minority
party is particularly ironic as the only amendment allowed to
the bill was the one offered by the Chairman himself.
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\57\A committee chairman can end debate on an amendment by ordering
the previous question on the amendment, a motion decided by simple
majority vote. By ordering the previous question on the amendment in
the nature of the substitute, before other amendments were offered, the
Chairman ended consideration and debate of other amendments.
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The majority's actions in this instance demonstrate a
complete lack of willingness or preparedness to give serious
consideration to this pressing issue and the underlying bill.
The majority controls what issues are brought up and how much
time they are granted by this Committee. The majority made a
deliberate decision not to allow the Committee minority to
review and comment on the bill. Instead of engaging in a
thorough examination of H.R. 397 and allowing substantive
debate on the merits of the legislation, Committee Democrats
showed a lack of seriousness by deciding to block Committee
Republicans from debate and deprive the full Committee from
consideration of substantive improvements to the legislation in
the form of 11 amendments which were shared by Committee
Republicans in advance of consideration of H.R. 397.
To report a bill out of Committee, to adopt an amendment,
or to approve a procedural motion, all that is required is a
simple majority vote. As such, the majority party is always in
a position to ensure it will prevail on all matters. The
minority party's opportunity to participate in the legislative
process is therefore limited to its right to be heard, to raise
important policy issues and concerns, and to offer substantive
alternatives--all of which were stifled during consideration of
H.R. 397 by the partisan whims of the majority. In these ways,
the majority's approach is highly inappropriate and
objectionable, especially considering the importance of the
underlying issue to thousands of workers and retirees who by no
fault of their own are suffering as a result of the current
situation.
Republican Amendments
H.R. 397 leaves a plethora of systemic issues facing
multiemployer defined benefit pension plans unresolved--
including perennial underfunding, inflexible and unpredictable
contributions, discrepancies in liability measurements,
uncertainty surrounding orphan liabilities and withdrawal
liability, outdated and inaccurate plan data, and an untenable
multiemployer insurance program. These problems manifest
themselves in concerns over funding of benefit promises to
active workers, uncertainty in the amount of benefits that will
be available to terminated vested participants and those in pay
status, impediments to business transactions, and negative
impacts on employers' ability to compete.
Aside from these systemic issues that H.R. 397 fails to
address, the bill puts taxpayers on the hook to bail out
failing pension plans, creates significant risk of moral
hazard, and neglects to make necessary structural changes to
put the multiemployer pension plan system on the right track.
Committee Republicans submitted amendments to the majority
prior to consideration of the bill intended to protect plan
participants, plan integrity, and the American taxpayer. During
the Committee markup of H.R. 397, Committee Republicans were
blocked not only from debating the bill, but also from offering
any amendments to the legislation.
Obama-Trump Premiums
The Committee's Republican Leader, Representative Virginia
Foxx (R-NC), intended to offer an amendment that serves as an
example of meaningful, bipartisan reforms starting with basic
principles on which both sides can agree. In his Fiscal Year
2017 Budget, President Obama offered a legislative proposal to
shore up the PBGC that was later adopted by President Trump and
included in his Fiscal Years 2018, 2019, and 2020 Budget
submissions. Under the Obama-Trump proposal, additional
premiums would be established to support PBGC's multiemployer
insurance program, similar to those already applicable to
PBGC's single-employer insurance program.\58\ While the
multiemployer insurance program requires payment only of a
modest flat-rate premium,\59\ PBGC's single-employer insurance
program requires payment of a flat-rate premium and a variable-
rate premium (VRP), assessed on a plan's level of underfunding.
In addition to raising additional revenue, this serves as a
strong disincentive to maintaining significantly underfunded
plans.
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\58\The Single Employer Pension Plan Amendments Act of 1986 raised
the per-participant premium from $2.60 to $8.50. The Omnibus Budget
Reconciliation Act of 1987 raised the basic per-participant premiums to
$16 and added a variable-rate premium (VRP) tied to plan underfunding--
capped at $53. The Retirement Protection Act of 1994 phased out the $53
per-participant cap on the VRP over three years. The Deficits Reduction
Act of 2005 increased premiums to $30 and indexed them to the annual
rate of growth in the national average wage. The Pension Protection Act
of 2006 removed VRP exemptions and made permanent the $1,250 per-
participant surcharge premium for certain distress terminations. The
Moving Ahead for Progress in the 21st Century Act (enacted July 6,
2012) raised premiums to $42 in 2013 and $49 in 2014, and capped the
VRP at $400 per participant. The Continuing Appropriations Resolution,
2014 increased premiums to $57 and $64 in 2015 and 2016, respectively.
The flat-rate per participant premium is $80 for the 2019 plan year.
\59\For 2019, multiemployer plans pay only $29 per participant per
year for a maximum guarantee to retirees of about $13,000 annually. In
2012, plans were paying only $9 per year. In contrast, the single-
employer program in 2019 requires a plan sponsor to pay an annual flat-
rate premium of $80 per participant in addition to a VRP capped for
2019 at $541 per participant.
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Multiemployer pension plans are collectively underfunded by
$638 billion as of the 2016 plan year.\60\ Chairman Scott
pointed out at the March 7, 2019, HELP Subcommittee hearing
titled ``The Cost of Inaction: Why Congress Must Address the
Multiemployer Pension Crisis,'' that premium costs pale in
comparison to required plan contributions.\61\ In the 2016 plan
year, the most recent for which we have complete data, employer
contributions to multiemployer plans totaled over $18 billion,
while plans paid only $282 million in PBGC multiemployer
insurance premiums.\62\ This is not sustainable.
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\60\2016 PBGC Data Tables, Table M-13, https://www.pbgc.gov/sites/
default/files/2016_pension_data_tables.pdf.
\61\The Cost of Inaction: Why Congress Must Address the
Multiemployer Pension Crisis: Hearing Before the Subcomm. on Health,
Emp't, Labor, & Pensions of the H. Comm. on Educ. & Labor, 116th Cong.
(Mar. 7, 2019) (oral statement of Chairman Bobby Scott, starting at
2:15:39), https://www.youtube.com/watch?v=hhokvHliafQ.
\62\Form 5500 data, https://www.dol.gov/agencies/ebsa/about-ebsa/
our-activities/public-disclosure/foia/form-5500-datasets; 2016 PBGC
Data Tables, Table M-2, https://www.pbgc.gov/sites/default/files/
2016_pension_data_tables.pdf.
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The premium increases included in the Foxx amendment are
modest--especially when compared to the severity of the issue
facing pensioners in these plans, and the unprecedented
possibility that the federally-chartered insurance corporation
set up to protect workers and retirees in these plans might
fail. Most plans can withstand this modest premium increase--
still, the amendment anticipates the hardship that premium
increases could impose on certain plans and allows a waiver of
premium increases for plans in the worst conditions if payment
would accelerate plan insolvency.
PBGC estimates that a VRP assessed on a plan's amount of
underfunding and an employer withdrawal premium to compensate
PBGC for the extra risk posed when an employer exits a
multiemployer plan, set at modest levels, could extend PBGC's
solvency to 2033. This proposal sets aside partisan differences
to make difficult--but necessary--decisions that are right for
all parties involved.
The modest changes included in the Foxx amendment do not
offer a perfect solution, but they offer relief--by allowing
PBGC's multiemployer insurance program to remain solvent into
the year 2033--and time to craft responsible, bipartisan, and
fiscally responsible solutions that do not use taxpayer dollars
to bail out insolvent plans. These solutions involve complex
issues that deserve serious consideration, and not the rigged
process pursued by Committee Democrats at the markup of H.R.
397.
Independent Trustees in Loan-Recipient Plans
The HELP Subcommittee Republican Leader, Representative Tim
Walberg (R-MI), would have offered an amendment to improve
protections for active workers and ensure improved operation of
strained plans under H.R. 397 by requiring removal of all
current trustees before a plan receives a PRA loan and the
appointment instead of an independent trustee to serve over the
loan period.
A multiemployer plan's board of trustees--made up of half
union and half employer representatives--is entrusted with the
solemn responsibility of safeguarding participant benefits.
These trustees are obligated to ensure that plans are managed
responsibly so that benefits promised to workers will be there
when they retire. When Congress passed ERISA, it imposed upon
plan trustees the highest duties known to law.\63\ Under ERISA,
a fiduciary must act ``solely in the interest of the
participants and beneficiaries'' for the ``exclusive purpose''
of providing benefits and defraying expenses.\64\
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\63\Donovan v. Bierwirth, 680 F.2d 263, 272 n. 8 (2d Cir. 1982).
\64\ERISA Sec. 3(21)(A); 29 U.S.C. Sec. 1002(21)(A).
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While trustees cannot be expected to predict exactly how
and when outside factors might affect their plan, trustees
should be familiar with the general universe of outside factors
that may influence a plan. It is safe to say that it is not in
the interest of plan participants and beneficiaries to be in a
severely underfunded plan. It is also not in the interest of
plan participants and beneficiaries to be promised benefits in
excess of what the plan can afford. Yet, these are exactly the
circumstances a plan must prove to qualify to receive a
taxpayer-subsidized loan under H.R. 397. Given the long-term
nature of pension promises, trustees should manage a plan to
ensure it can weather the ups and downs of the economy and
demographic fluctuations.
Trustees who have failed to safeguard participant benefits
must not be entrusted with continued management of these
workers' hard-earned pensions, and they should not continue to
receive a paycheck subsidized by the American taxpayer. Pension
benefits are sacred to the retirees who worked hard and long to
earn them. By failing to allow consideration of the Walberg
amendment, Committee Democrats stood against the principle that
pensioners in failed plans deserve better than what they have
received from current plan trustees. The majority's refusal to
allow a debate and vote on this amendment sets up active
workers to face the same concerns regarding funded benefit
promises that plague terminated vested participants and current
retirees.
Taxpayer Protection
Committee Democrats marked up this legislation without
producing an official cost estimate of the bill under
consideration. It is outrageous that the Committee voted to
adopt H.R. 397, a complex and technical bill which impacts
millions of Americans as well as employers and labor unions
without an official CBO score. In July 2018, the CBO released
its preliminary analysis of an earlier iteration of this
legislation.\65\ That CBO analysis predicted this bill could
increase deficits by $100 billion or more in the first 10 years
alone. CBO could not give a more specific answer because, in
CBO's words, ``the bill as introduced does not resolve
uncertainties around several key elements with large budgetary
effects.'' One of those key elements is that upon a default,
H.R. 397 allows the PRA to renegotiate the loan and forgive the
loan principal, but the bill fails to specify conditions
strictly surrounding adjusted repayment requirements.
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\65\CBO, Preliminary Analysis of S. 2147, the Butch-Lewis Act of
2017, as introduced (2018).
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Representative Phil Roe (R-TN) would have offered an
amendment to strike the section of the bill which authorizes
the PRA to forgive the loan principal upon a recipient plan's
default. If the true intent of H.R. 397 is to establish a loan
program--a basic principal of which is that money lent out will
be repaid--then this is a crucial improvement to the bill.
Committee Democrats instead refused to consider this amendment
and demonstrated that their true intent in passing H.R. 397 is
to provide an open-ended federal taxpayer bailout of private-
sector plans.
Adjusted Guarantee to Cover Participants in the 1974 UMWA Plan
Representative Walberg would have offered an amendment to
modify the PBGC guarantee so that no participant in the United
Mine Workers of America 1974 Pension Plan (UMWA 1974 Plan)--
expected to become insolvent in 2023--would see a single cent
in benefit reductions, and to extend PBGC's solvency through
2030.
When the UMWA 1974 Plan becomes insolvent, 90 percent of
the participants in this plan will see a reduction in benefits
under the PBGC guarantee. Under the current formula, those with
few years of service receive a relatively low PBGC maximum
guarantee, which creates a unique problem in the UMWA 1974
Plan. Mining is a dangerous job, and in recognition of those
dangers, the UMWA 1974 plan offers a flat monthly benefit for
life to workers who are unable to return to work after being
injured on the job. Because these workers have few years of
service under the plan, the PBGC guarantee structure exposes
these workers to particularly steep cuts when their plan fails.
Such cuts will pale in comparison to the benefit cuts these
workers and retirees could face in 2025 when the PBGC's
multiemployer insurance program becomes insolvent.
The Walberg amendment, which combines the bipartisan Obama-
Trump premium proposal with an adjustment to the PBGC
guarantee, allows for an expedited solution that guarantees
full benefits for participants in that plan and allows PBGC to
remain solvent, covering full benefits through 2030. Instead of
considering a bipartisan solution that recognizes the urgency
of the situation, providing important and expedited support for
PBGC and America's miners participating in the UMWA 1974 Plan,
Committee Democrats chose to prevent Rep. Walberg from offering
this amendment.
Bargaining Oversight in Loan-Recipient Plans
Rep. Roe intended to offer an amendment requiring any
collective bargaining agreement that affects loan-recipient
plans to receive approval from the Secretary of the Treasury
and the Secretary of Labor before going into effect.
Responsible Promises
Representative Glenn Grothman (R-WI) would have offered an
amendment to ensure that severely underfunded multiemployer
plans stop making promises they know they cannot afford to
keep. In 1979, testimony at a Congressional hearing on
multiemployer pension plans said that ``if judged by normal
business concepts of insolvency, every multiemployer plan--
including the healthiest--would be considered insolvent.''\66\
Unfortunately, some things do not change. Under the normal
business definition, a plan is insolvent when its liabilities
exceed its assets. H.R. 397 requires that to qualify for a
federal loan, a multiemployer plan must not only prove its
insolvency, but it also must prove it will soon be unable to
meet obligations as they become due. That is, a plan must prove
it is running out of money to obtain approval to receive
taxpayer-subsidized money.
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\66\Multiemployer Pension Plan Termination Insurance Program:
Hearing Before the Subcomm. on Oversight of the H. Comm. on Ways &
Means, 96th Cong. (1979) (statement of Theodore R. Groom).
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As a condition of the taxpayer-funded loans authorized by
H.R. 397, a loan-recipient plan may not increase benefit
accruals during the period of the loan. This does not require
that they stop making promises; it only requires that new
promises are not higher than promises made in the past. Thus,
under the bill, a plan approved for a taxpayer loan--that is to
say, a plan that is running out of money--is allowed to
continue making new promises to active workers, even as it
cannot pay for the promises it has already made to retirees.
For everyone's benefit--but especially for the benefit of
current workers who are being promised benefits decades into
the future by a plan that has no money today--this cannot be
permitted. Rep. Grothman's amendment would have required that
any plan approved for a loan--and again, this means a plan that
has already demonstrated it is running out of money--cannot
make any new benefit promises until the loan has been repaid in
full. This amendment affirms the principle that pension
promises made need to be pension promises kept. Committee
Democrats took a clear stand against retirement security for
both workers and retirees by refusing consideration of this
amendment.
Pensioners First
H.R. 397 provides taxpayer-subsidized loans to failing
pension funds, while allowing the same trustees who guided the
plans to failure to maintain control. These unique
circumstances require that extra consideration be given to the
investment policies and actions permitted in these plans.
Representative Francis Rooney (R-FL) would have offered an
amendment to clarify that economically targeted investments are
prohibited in loan-recipient plans and to ensure that all
investment decisions in such plans be made solely for the
economic benefit of plan participants.
Committee Republicans believe that investment decisions in
pension plans must be focused and made with one goal--the
retirement security of pensioners in these plans. Plan
participants, who rely on investment performance to ensure
their retirement security, relinquish control over plan
investment decisions trusting that the plans will be managed by
experts with only the workers' retirement security in mind. As
such, workers and retirees place their faith in plan trustees
to manage plan assets in a way that ensures promised benefits
will be available upon retirement.
To allow multiemployer pension funds, and the trillions of
dollars of assets they manage on behalf of pensioners, to be
used to advance political agendas or to promote the social
policy whims of plan trustees would be unconscionable. By
passing H.R. 397, Committee Democrats are green-lighting, for
the first time ever, a massive infusion of taxpayer dollars
into these enormous pension funds. Notwithstanding the
controversy surrounding this risky scheme, this makes it even
more important that investment decisions are made based on what
will ensure financial security for plan participants, without
regard to collateral social policy issues--as plan trustees
cannot purport to speak for the American taxpayer.
Rep. Rooney's amendment would have required that plan
trustees put pensioners first--ensuring that when investment
decisions are made in participants' pension funds, their
retirement security must be the only consideration. Instead, by
denying consideration of this important amendment, Committee
Democrats demonstrated their true priority is to guarantee
union trustees the power to use the financial influence of
pensioners' assets to drive a political agenda.
Union Collateral
Multiemployer pension plans are maintained as part of a
collective bargaining agreement between employers and labor
unions--and these plans' boards of trustees are equally
comprised of union and employer representatives. Rep. Roe would
have offered an amendment to ensure that equal representation
bears equal responsibility.
Unions enticed employees with the promise of lifelong
income in retirement but failed to manage or bargain for
adequate funding to keep these promises. Under Rep. Roe's
amendment, the PRA is authorized to place a lien on union
assets as collateral for any PRA loan. If, along with Committee
Democrats, multiemployer plans and their union representatives
are confident that plan administration is not to blame for
current underfunding, taxpayer-funded loans are the only
solution for said underfunding, and no further additional
reforms are needed to protect retirees and workers from future
underfunding, then labor unions should be more than willing to
provide union assets as collateral. By refusing to allow
consideration of this amendment, Committee Democrats
demonstrated that they are more interested in protecting union
assets than providing for the retirement security of retirees
and workers.
Single-Employer Parity
H.R. 397 requires that a multiemployer pension plan
receiving a PRA loan must reinstate any approved MPRA benefit
suspensions to original benefit levels, whereas single-employer
pensioners who have experienced benefit cuts would receive no
such assistance. Rep. Roe would have offered an amendment to
guarantee parity for these single-employer plan participants by
expanding the loan program to include failed single-employer
plans whose participants' benefits were reduced to the PBGC
guarantee. By preventing Committee Republicans from offering
any amendments to the bill, Committee Democrats refused to
consider how their bill creates separate standards for
multiemployer and single-employer plan benefits.
Actuarial Integrity
Workers deserve certainty that their pension benefits will
be funded, and taxpayers deserve certainty that their hard-
earned money will be used responsibly. To achieve this
objective, Republican Leader Foxx would have offered an
amendment to ensure that the loans issued under H.R. 397 are
indeed repaid by requiring that a plan's actuary and each plan
trustee serve as guarantors of the loan. In contrast, under
H.R. 397, a plan's loan application must demonstrate that the
plan is reasonably expected to be able to repay the loan. The
Chairman's amendment in the nature of a substitute requires
that assumptions and representations in a plan's loan
application must not be unreasonable.
This ``reasonable'' standard is not new. In fact, it is the
standard to which current funding assumptions--those that have
allowed 134 plans covering 1.3 million participants to reach
the brink of insolvency--are held. Given the history of these
plans and the importance of these projections, assumptions must
be determined with the utmost level of care and required to
reflect the most likely course of events. The Foxx amendment
holds plan trustees and actuaries accountable for the decisions
they make in these plans and for representations they make on a
loan application.
For workers and retirees, their retirement security is on
the line. The Foxx amendment ensures that those with actual
control over the plan have a stake in the outcome as well.
Despite a risky and dangerous provision in the bill that allows
forgiveness of loan principal, Democrats claim that loans
issued under H.R. 397 will be fully repaid. Committee Democrats
refused to debate this concern, and by failing to allow this
amendment, Committee Democrats demonstrated their expectations
that American taxpayers should take on significant risk to bail
out troubled private pension plans without requiring that plan
actuaries and trustees be prepared to stand behind their
representations.
Conclusion
The flawed, costly, and alarming policy contained in H.R.
397 puts taxpayers on the hook for likely loan defaults,
creates incentives for plans to continue to underfund and
eventually fail, and endangers the retirement security of
millions of pensioners. The majority's political choice to
consider this flawed bill--which has no chance of moving
forward in the Senate--will result in delays and not solutions
for workers and retirees who are so rightfully concerned about
the state of their pensions. H.R. 397 permits systemic flaws
and encourages irresponsible plan practices to continue, to the
detriment of active workers, retirees, and taxpayers.
Shockingly, Republicans were blocked from offering their
solutions to improve the bill to address these concerns. For
these reasons, and those outlined above, Committee Republicans
strongly oppose enactment of H.R. 397 as reported by the
Committee on Education and Labor.
Virginia Foxx,
Ranking Member.
Glenn Grothman.
Mark Walker.
Ben Cline.
Van Taylor.
Elise M. Stefanik.
Jim Banks.
James Comer.
Russ Fulcher.
Steve C. Watkins, Jr.
Glenn ``GT'' Thompson.
Brett Guthrie.
Rick W. Allen.
Lloyd Smucker.
David P. Roe, M.D.
Bradley Byrne.
Ron Wright.
Daniel Meuser.
Dusty Johnson.
Fred Keller.
William R. Timmons, IV.
[all]