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Low-Interest Program to Keep Multiemployer Pension Plans Alive

Low-Interest Program to Keep Multiemployer Pension Plans Alive

Thursday, 15 August 2019 10:28 PM Current | Bio | Archive

Multiemployer pension funds, numbering about 100 nationwide and covering about 1.3 million people, are projected to fail within the next 20 years, according to the Congressional Research Service.

Adding fuel to the fire, the Pension Benefit Guaranty Corporation (PBGC), the federal backstop for troubled pension plans, is already underfunded by $60 billion for multiemployer plans. PBGC, funded by premiums collected from defined-benefit plan sponsors, is forecast to run out of money for multiemployer plans by 2025, according to a 2017 projection by the agency.

A Possible Fix

On July 24, the U.S. House of Representatives passed the Rehabilitation for Multiemployer Pensions Act of 2019 (RMPA). This bill, commonly referred to as the Butch Lewis Act, includes the following main provisions:

  • Establishment of a new agency within the U.S. Treasury to administer a separate fund for the purpose of providing low-interest loans to troubled multiemployer plans.
  • The interest rate must be between the 30-year Treasury rate as of the beginning of the calendar year and 20 basis points over the 30-year Treasury rate on the date of the loan.
  • The loans provided will be 30-year interest only with a balloon repayment at the end.
  • Plans eligible to receive assistance must meet at least one of the following criteria as of the date of enactment:
    • Are in critical and declining status or have already been approved for a suspension of benefits under the Multiemployer Pension Reform Act of 2014 (MPRA).
    • Are in critical status, have a modified funded percentage of less than 40 percent, and have a ratio of active to inactive participants of less than two to five. Modified funded percentage is calculated using market value of assets and liabilities measured using an interest rate of average 30-year Treasuries (3.06 percent as of January 2019).
    • Became insolvent after December 16, 2014, remain insolvent, and have not been terminated.
  • Plans that were approved for a suspension of benefits under MPRA must apply for a loan. If approved, then the suspended benefits must be restored, including a retroactive payment of amounts previously reduced.
  • Plans applying for loans must demonstrate that they will avoid insolvency for the 30-year period, calculated to reflect regular benefit payments as well as loan interest and the balloon repayment.
  • Among other required information, the fund must provide information about how the loan proceeds will be invested, and identify the investment manager for the portfolio.
  • There are no provisions in the bill for increased PBGC premiums.
  • The Treasury is required to approve or deny applications within 90 days.


While the bill passed the House with bipartisan support, including that of 29 Republicans, the bill faces an uncertain future in the Senate. Republicans have often voiced opposition to funding for the multiemployer pension crisis, which they view as a bailout.

Despite voting yes, Tim Walberg (Michigan), the top Republican on the Education and Labor subcommittee that handled the bill, argues the legislation is a bailout missing the structural reforms needed to prevent a similar situation from happening again.

The Ways and Means panel’s top Republican, Kevin Brady (Texas), blamed the plans’ financial problems on “lousy financial mismanagement” and said that the measure “doesn’t make these failing plans more stable, doesn’t end underfunding or make them more solvent over time.”

Additionally, opponents believe RMPA is a waste of taxpayers’ dollars. While it may temporarily infuse money into struggling pension funds, it does not include provisions requiring the structural changes necessary to solve the problems that led to insolvency in the first place.

Considering the depth and breadth of the multiemployer pension crisis, it would be unwise and unfair for Congress to pledge taxpayer support for private-sector pension plans. Doing so would be extremely costly and would set the stage for a bailout of state and local pension plans with an estimated $4 trillion to $6 trillion1,2 in unfunded pension liabilities.

Bottom Line

There are a multitude of suggested fixes beyond the RMPA that Congress could act on, including the changes to increase the viability of PBGC; prevention of future underfunding via correction of funding rules; and allowing of plans to minimize pension losses.

For employers, the status of an employer plan will determine the impact of this legislation. The bill does not seem to provide for future eligibility if a plan is not eligible at the time of enactment. While it is good news for all plans that this bill does not include any PBGC premium increases, some plans that would benefit from provisions to help them get out of a stagnant situation may be ineligible because of plan demographics.

Some plans may find it advantageous to significantly shift their mortality, investment return, or industry level assumption in order to be in critical and declining status to be eligible for the loan program.

[1] Joshua Rauh, Director of Research and Senior Fellow, Hoover Institution, testimony before the Joint Select Committee on Solvency of Multiemployer Pension Plans, U.S. Congress, July 25, 2018,


[2] American Legislative Exchange Council, “Unaccountable and Unaffordable: Unfunded Public Pension Liabilities Exceed $5.9 Trillion,”


Elliot Dinkin is president and CEO at Cowden Associates, Inc., specializing in helping corporate clients find the best solutions, both for the enterprise and its employees, with regard to compensation, healthcare benefits, retirement and pension issues, and Taft-Hartley fund consulting.

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Multiemployer pension funds, numbering about 100 nationwide and covering about 1.3 million people, are projected to fail within the next 20 years, according to the Congressional Research Service.
pension, plan, low, interest
Thursday, 15 August 2019 10:28 PM
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