Tomorrow, President Biden will join union workers and retirees at Max S. Hayes High School in Cleveland, Ohio, to announce the final rule implementing the US bailout’s special financial assistance program. The U.S. bailout provided critical assistance to working families and kickstarted our economic recovery, reopening 99% of schools, helping create more than 8 million jobs, and generating the fastest economic growth in 40 year. The special financial relief program will protect millions of workers in multi-employer pension plans who have faced significant reductions in their benefits.
Multi-employer plans are created through agreements between employers and a union, with plans typically involving multiple employers in a single industry or related industries. A typical worker whose multi-employer plan becomes insolvent would see their expected retirement benefits significantly reduced. Prior to the U.S. bailout, workers and retirees participating in more than 200 multi-employer pension plans risked not receiving the full benefits they earned and needed to support themselves and those of their family in retirement.
These plans are insured by a federal agency, the Pension Benefit Guaranty Corporation (PBGC). PBGC provides partial benefit protection for approximately 10.9 million workers and retirees in approximately 1,400 union-linked private sector multiemployer plans. Prior to the America Rescue Plan, the PBGC’s multi-employer pension insurance program was scheduled to become insolvent in 2026.
US bailout protects pension benefits for retirees
Named after heroic Ohio labor leader and pensions advocate Butch Lewis, the U.S. bailout special financial assistance program will provide financial relief to struggling multiemployer pension plans and ensure that millions of families facing benefit reductions will receive the full benefits they have earned.
Under this program, multi-employer pension plans in financial difficulty can apply for assistance from the PBGC. PBGC published an Interim Final Rule implementing the program in July 2021. Unions, employers and other key stakeholders provided important feedback that PBGC and the three Cabinet Agencies that make up its Board of Directors (the Departments of Labor, Treasury, and Commerce) considered in crafting the final rule. Significant policy changes between the Interim Final Rule and the Final Rule include:
- Address the amount of special financial assistance needed to better achieve the goal of allowing plans to remain solvent until 2051. The Interim Final Rule applied a single rate of return included in the law which is higher than would be expected for special financial assistance funds given that they were to be invested exclusively in fixed income products high quality, safe but low yield. The final rule uses two different rates of return for SFA and non-SFA assets so that the interest rate for SFA assets is more realistic given the investment limits on these funds. This policy fix will help ensure that all multi-employer plans that receive assistance will receive sufficient funds to remain solvent until 2051.
- Responsible investments in search of authorized returns: The final rule allows 33% of the special financial assistance to be invested in for-profit assets that should allow plans to receive a higher rate of return on their investments than under the interim final rule, but subject to strict protections. This portion of the plans’ TFA funds must generally be invested in publicly traded assets in liquid markets to ensure responsible management of federal funds. These return-oriented investments include stocks, equity funds and bonds. The remaining 67% of SFA funds must be invested in high quality fixed income products.
- Ensure MPRA plans can confidently restore past and future benefits and enter 2051 with rising assets. PBGC designed the final rule to ensure that no MPRA scheme – the 18 multi-employer schemes that remained solvent by cutting benefits under the Multi-Employer Pension Reform Act 2014 (MPRA) – was forced to choose between restoring their benefit payments to previous levels and remaining solvent indefinitely, as required by law. The final rule ensures that all 18 MPRA plans avoid this dilemma, with enough assistance that those plans can both restore benefits and remain solvent indefinitely until 2051.
Taken together, these changes ensure that all schemes receiving special financial assistance should be solvent and pay full benefits until at least 2051.
The US bailout special financial assistance package will have historic impacts:
- Positions multi-employer plans that receive support to remain solvent until at least 2051 – with no reduction in accrued benefits:
- Before the US bailout: more than 200 multi-employer plans were on the verge of becoming insolvent in the short term.
- After: Thanks to the US bailout, every multi-employer pension plan facing near-term insolvency and benefit cuts with special financial assistance is expected to remain solvent until 2051, and much longer.
- Protect the benefits of millions of workers who have faced cuts:
- Before the american rescue plan: A wave of multi-employer pension plan insolvencies was expected to leave two to three million unionized workers, retirees and their families without all the benefits they had earned.
- After: Two to three million workers and retirees in assisted plans are expected to receive their full pension benefits over the next three decades.
- Drastic reductions in canceled pensions for more than 80,000 workers and retirees in 18 multi-employer schemes:
- Before: The MPRA allowed, for the first time, schemes to cut benefits for workers and retirees in order to remain solvent indefinitely. Eighteen multi-employer “MPRA plans” have been approved to use this program.
- After: More than 80,000 workers and retirees of MPRA schemes who, through no fault of their own, had their pension benefits reduced, are eligible to have those benefits fully restored – with their schemes solvent until 2051. The program special financial assistance ensures that all MPRA schemes that have been forced to reduce their benefits are able to reinstate those reductions in full, maintain their full benefits for the foreseeable future and remain solvent indefinitely.
- Largest effort to protect the solvency of the multi-employer pension system in nearly 50 years:
- Before: Prior to the US bailout, due to anticipated financial pressures from the need to secure (partial) minimum benefits for insolvent plans, PBGC’s multi-employer pension insurance program was scheduled to become insolvent in 2026.
- After: The American Rescue Plan’s Special Financial Assistance Program extended the solvency of the PBGC Multi-Employer Insurance Program from 2026 to 2055. This relief is the single most important policy to strengthen the solvency of our multi-employer pensions. countries since the enactment of the ERISA (Employee Retirement Income Security Act). ) in 1974.