Pension Reform Bill Approved by CongressPublications - Client Alert | December 14, 2014
The U.S. House of Representatives and Senate passed a $1.01 trillion spending bill containing significant pension reform provisions. The President is expected to sign the spending bill.
The spending bill includes the Multiemployer Pension Reform Act of 2014 (the MPRA). The MPRA allows trustees of multiemployer plans to reduce benefits to retirees in order to avoid insolvency. The MPRA also provides relief to employers with respect to withdrawal liability payments, guarantees preretirement survivor annuities for insolvent plans, and increases the premiums that multiemployer plans pay to the Pension Benefit Guaranty Corporation (the PBGC).
Below is a summary of the important provisions contained in the MPRA.
Reduction of Benefits to Retirees
- Trustees of “critical and declining” plans, plans that are projected to become insolvent within 14 plan years (19 plan years if the plan has a ratio of inactive participants to active participants that exceeds 2 to 1 or if the unfunded percentage of the plan is less than 80%), may amend the plan to significantly reduce benefits.
- Plan trustees may reduce benefits to no less than 110% of PBGC minimums to the extent needed to avoid insolvency.
- Retirees who are age 80 or over, or are receiving a disability pension, would not be subject to benefit cuts. Retirees ages 75-79 would be subject to smaller cuts than retirees under age 75.
- Any reduction in benefits must be approved by a majority of plan participants via a mandatory vote.
- A vote by plan participants not to reduce benefits may be overridden in the event the government determines the plan is “systemically important,” meaning the present value of projected financial assistance payments by the PBGC would exceed one billion dollars (indexed going forward) if suspensions are not implemented.
- Trustees’ decisions to cut benefits can only be reversed by the Department of Treasury, and then only if the Treasury determines the trustees’ decision to cut benefits or the extent of the benefit cuts is “clearly erroneous.”
- These provisions shall be effective on the date the MPRA is enacted into law.
Employer Relief for Withdrawal Liability Payments
- The MPRA provides that surcharges imposed on employers pursuant to the Pension Protection Act of 2006 as well as contribution increases pursuant to a rehabilitation or funding improvement plan do not count towards the employer’s contribution rate for purposes of determining the employer’s withdrawal liability.
Guarantee for Pre-Retirement Survivor Annuities
- MPRA provides that preretirement survivor annuities payable to the spouse of a participant in a plan that becomes insolvent or is terminated shall not become forfeitable simply because the participant has not died as of the date the plan becomes insolvent or is terminated.
Expanded Right to Certain Plan Information for Participants and Employers
- MPRA broadens the right of participants and employers to certain plan information, including plan funding notice, audited financial statements, and the funding improvement or rehabilitation plan and related contribution schedules.
Increase in PBGC Premiums
- Effective for plan years beginning after December 31, 2014 the insurance premiums multiemployer plans pay to the PBGC are increased from $13 to $26 per participant per year.
Changes to Merger and Partitions Rules
- The PBGC will be authorized to promote and facilitate plan mergers and may provide financial assistance in certain situations where one of the plans to be merged is in critical and declining status.
- The PBGC’s ability to approve partitions to carve out the bad portions of a plan from the good portions has also been expanded.
If you have any questions regarding your pension plans, please contact your Kutak Rock LLP attorney or a member of our Employee Benefits Practice Group.