The distressed financial condition of many multiemployer pension plans has been well-chronicled. Some employers have direct exposure to multiemployer pension plans as a result of union contracts requiring employer contributions. Other employers have more limited exposure to multiemployer pension plans, such as when the employer considers the acquisition of a company that participates in a multiemployer plan.
A key consideration in any evaluation of a multiemployer pension plan is the possibility that an employer might incur withdrawal liability if the employer completely or partially withdraws from plan participation. If the employer incurs a withdrawal event, the employer is responsible (has withdrawal liability) for its allocable share of the plan’s unfunded vested benefits. Thus, if the plan is not fully funded at the measurement date applicable to an employer’s withdrawal, the employer incurs withdrawal liability, even though it made all contributions required under the collective bargaining agreement.
The American Rescue Plan Act of 2021 (the “Act”) includes substantial financial assistance to eligible multiemployer pension plans (not all multiemployer plans will receive assistance). The Act authorizes funds in “such amount required for the plan to pay all benefits due” until the last day of the 2051 plan year. The government-provided funds represent a grant, not a loan.
Given that the financial assistance is intended to ensure a plan’s solvency for the next 30 years, some employers have asked whether the plan’s improved financial condition (resulting from the government aid) will reduce or eliminate an employer’s potential withdrawal liability. Since withdrawal liability represents a withdrawing employer’s allocable share of the plan’s unfunded vested benefits, the question is understandable.
An employer should not assume that the Act’s multiemployer financial assistance provisions will have any near-term impact on the employer’s potential withdrawal liability. The bill that originally passed the House of Representatives expressly excluded any financial assistance from the withdrawal liability calculation for a period of 15 years. That House provision was struck during the Senate approval process and was not in the final bill signed by President Biden. However, it might be premature to conclude that the absence of the original House provision from the final bill means that financial assistance amounts operate to reduce an employer’s potential withdrawal liability.
The final version of the Act, while eliminating the specific House provision, also included a broad grant of regulatory authority to the Pension Benefit Guaranty Corporation (PBGC) to “impose, by regulation or other guidance, reasonable conditions on an eligible multiemployer plan that receives special assistance relating to … withdrawal liability.” There has been significant commentary within the employee benefits community to the effect that the PBGC is expected to use this grant of regulatory authority to provide that an employer’s withdrawal liability is calculated without regard to any financial assistance received by the plan for up to 15 years (or such other period prescribed by the PBGC), substantially consistent with the original House provision.
Further, there is historical precedent for disregarding selected items for withdrawal liability purposes in the case of troubled multiemployer plans. For example, under the 2014 Multiemployer Pension Plan Reform Act (“MPPRA”), a multiemployer plan may seek approval to reduce or suspend benefit payments in certain instances. Any reduction in or suspension of benefits reduces the plan’s benefit obligation while retaining cash within the plan, thereby improving the plan’s financial condition. Nevertheless, the MPPRA included a rule that any such benefit reduction or suspension is disregarded for a period of 10 years for withdrawal liability purposes.
Until the PBGC issues guidance, the exact impact of the multiemployer financial assistance program on employer withdrawal liability is unknown, but many within the employee benefits community expect that future guidance will require that withdrawal liability calculations be made without regard to financial assistance received by the plan for a prescribed period. Until the situation is clarified, employers should not assume that the Act’s multiemployer financial assistance program reduces or eliminates potential withdrawal liability.
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