Proposed Legislation – Multiemployer Pension Relief

On January 9, 2019, Rep. Richard Neal (D-MA) introduced the Rehabilitation for Multiemployer Pensions Act into Congress.

This bill seeks to help ailing multiemployer pension plans by establishing a new agency within the Treasury Department called the Pension Rehabilitation Administration (PRA).   This agency would be authorized to issue bonds in order to raise capital.  The capital would then be used to issue loans to critical and declining status plans and some already-insolvent plans that are currently receiving financial assistance from the Pension Benefit Guaranty Corporation (PBGC).

The loan would be interest-only for 30 years with principal due at end of 30th year and in an amount needed to fund pensions for current retirees only.  The pension fund would be required to purchase a commercial annuity contract with the loan proceeds, or set the funds aside in a separate pool and invest in a bond portfolio which has cash flows that mimic the expected pension payouts.  In certain situations, a loan could be combined with financial assistance from the PBGC in order to prevent plan insolvency.

Loan applications would need to demonstrate that the loan will enable the plan to avoid insolvency during the 30-year period and that plan would be reasonably expected to pay the loan back with interest.  The plan would not be allowed to reduce benefits during the loan term and could not accept a CBA with lower contribution rates.

Congress Takes Steps to Help Failing Multiemployer Plans

There has been a lot of chatter as of late about possible legislation and efforts on the Hill to provide relief to failing multiemployer pension plans. On Thursday, November 16th, House Democrats introduced a bill that would allow multiemployer pension plans to receive loans from Treasury.

While the language of the bill is not yet available, according to congress.gov, the bill is intended to create a Pension Rehabilitation Trust Fund and to establish a Pension Rehabilitation Administration (PRA) within the Department of the Treasury to make loans to multiemployer defined benefit plans, and for other purposes. The PRA would allow pension plans to take out loans at low interest rates, in order for the plans to remain solvent and continue providing full retirement benefits for current and future retirees. The money for the loans would come from the sale of Treasury-issued bonds to financial institutions. There will likely be some reporting requirements and other restrictions for plans that take out such loans, to ensure that the plans can pay back the taxpayers.

This bill is in the first stage of the legislative process. The bill is now assigned to three House committees for review and consideration. If approved, it will then be sent to the House or Senate as a whole. A bill must be passed by both the House and Senate in identical form and then be signed by the President to become law.