President Joe Biden, earlier this month, signed into law the American Rescue Plan Act of 2021, (ARPA), the much-touted $1.9 trillion stimulus bill meant to address both the pandemic and its attendant economic chaos The Trusted Professional will be proving a deep dive into various parts of this bill over the coming days. This article examines some of the pension and health benefit changes contained in the bill. The Trusted Professional previously took an in-depth look at ARPA's provision on unemployment enhancements, direct payments, child tax credits and health insurance benefits, as well as some of the many tax-specific provisions.

Regulatory Relief for Troubled Plans

Section 9701 allows certain sponsors of troubled multi-employer pension plans the option to delay their designation as “Critical,” “Critical and Declining,” or “Endangered” by a year. This designation is given by the Department of Labor to plans that have problems with funding, liquidity or both as defined under federal law. Plans given such a designation must both inform beneficiaries as well as face possible restrictions. If a plan is in critical status, adjustable benefits may be reduced and no lump sum distributions in excess of $5,000 can be made. If a critical status plan is also critical and declining, the plan sponsor may file an application with the secretary of the Treasury requesting a temporary or permanent reduction of benefits to keep the plan from running out of money. Pension plans in critical and endangered status are required to adopt a plan aimed at restoring the financial health of the pension plan.

A troubled plan that takes this temporary relief will have the same status during its first plan year beginning during the period between March 1, 2020, and February 28, 2021, or the next succeeding plan year (as designated by the plan sponsor in such election) as it had the year before. Further, plans that are already in endangered or critical status will not  be required to update their plan or schedules until the year following the relief's expiration.

If the plan actuary has already certified it to be in critical status for the designated plan year, then such plan shall still be treated as a plan in critical status.

Financial Assistance for Multi-Employer Plans

Section 9704 establishes a fund for special financial assistance to multi-employer pension plans, as provided under a new Section 4262 of the Employee Retirement Income Security Act of 1974 (ERISA), which will be overseen by the Pension Benefit Guaranty Corporation. The fund targets plans that are in critical and declining status; have had a suspension of benefits approved; have been certified by an actuary in any plan year beginning in 2020 through 2022 to be in critical status, has a modified funding percentage of 40 percent and has a ratio of active to inactive participants less than 2 to 3; or became insolvent for purposes of Section 418E after December 16, 2014, and has remained so insolvent and has not been terminated as of the enactment of ARPA.

Once guidance is released, plan sponsors will have the ability to apply for aid from this new fund. The amount will be whatever is required to pay all benefits due during the period beginning on the date of payment of the special financial assistance payment and ending on the last day of the plan year ending in 2051, with no reduction in a participant’s or beneficiary’s accrued benefit as of the date of enactment of this section, except to the extent of a reduction in accordance with Section 305(e)(8) adopted prior to the plan’s application for special financial assistance under this section, and taking into account the reinstatement of benefits required under subsection (k). The law then goes on to say, “The funding projections for purposes of this section shall be performed on a deterministic basis.”

The section also reinstates benefits if they were previously suspended under Section 305(e)(9) or Section 4245(a), as well as provides payments equal to the amount of benefits previously suspended under Section 305(e)(9) or 4245(a) to any participants or beneficiaries in pay status as of the effective date of the special financial assistance, payable, as determined by the eligible multi-employer plan. This can come in the form of either a lump sum or in equal monthly installments over a period of 5 years. Generally, the assistance has to be used for benefit payments and plan expenses. Special financial assistance and any earnings on such assistance shall be segregated from other plan assets.

The funds are meant to be invested by plans in investment-grade bonds or other investments as permitted by the corporation. However, the government, in turn, cannot impose conditions around the degree to which benefits are or are not cut, the governance of the fund itself, or any funding rules relating to the plan receiving special financial assistance under this section.

Other Pension Provisions

Section 9703 allows plans that met the solvency test under ERISA as of Feb. 29, 2020, to apply Section 8 of the U.S. Code § 431, which concerns minimum funding standards for multi-employer plans for the first two plan tears after Feb. 29, 2020, whereas, before, the code had restricted it to similar plans from 2008. The relief applies to factors such as amortization of net investment losses, including the pandemic as a reason for net investment losses, and expanding the smoothing period.

Section 9705 allows single-employer plans—with respect to plan years beginning after Dec. 31, 2021 (or, at the election of the plan sponsor, plan years beginning after Dec. 31, 2018, Dec. 31, 2019, or Dec. 31, 2020)—to have reduced to zero the shortfall amortization bases for all plan years preceding the first plan year beginning after Dec. 31, 2021 (or after whichever earlier date is elected pursuant to this paragraph), and all shortfall amortization installments determined with respect to such bases. Further, for such plans, the phrase ‘15-plan-year period’ in Section 430(c)of the Internal Revenue Code is changed to ‘7-plan-year period.'

Section 9706 extends the actuarial tables in Section 430(h)(2)(C)(iv) of the Internal Revenue Code to go out to 2029. Section 9707 allows pension plans tied to community newspapers to follow alternative minimum funding standards. Section 9708 updates regulations on excessive employee remuneration to include the top five paid employees in taxable years beginning after Dec. 31, 2026, as a category of covered workers.