The American Rescue Plan Act of 2021 contains pension relief measures for both multiemployer and single employer pension plans. ARPA 21 was signed into law by President Biden on March 11, 2021 with relief measures included for single employer pension plans and for some multiemployer pension plans.
Multiemployer plan provisions
Multiemployer pension plans will be able to elect to amortize asset losses as well as other losses applicable to COVID-19 over a 30-year period, rather than the standard 15 years, for the first two plan years ending after February 29, 2020. Given the strong market performance in 2019 and 2020, this is likely to have limited impact for 2020 or 2021 calendar year plans. However, plans with a non-calendar year measurement dates may find some benefit with this change, particularly plan years ending March 31, 2021.
Plans will also be able to elect to maintain their zone status for up to two plan years beginning after March 1, 2020. Additionally, under ARPA, funding improvement and rehabilitation plans will be able to use a 15-year period for improvement rather than the current 10 years. And funding improvement plans for seriously endangered plans will be able to elect 20 years rather than the current 15.
Provisions applicable for troubled multiemployer plans in ARPA would provide financial assistance in an amount needed to pay benefits and expenses through 2051. Plans that apply and are approved for this will have to reinstate suspended benefits, continue to pay Pension Benefit Guaranty Corporation (PBGC) premiums and be considered Critical until 2051.
Finally, beginning in 2032 the PBGC premium rate for multiemployer plans would increase from $26 to $52, a doubling.
Single employer plan provisions
Single employer pension plans are provided significant funding relief under ARPA. Amortization bases are currently set up annually and recognized over 7-year periods to pay off the unfunded liability. Under ARPA, beginning in plan years starting in 2020 (with an option to elect application for 2019, 2021 or 2022), these historical bases will be reset to $0 and a new amortization base will be established with a 15-year payment period. Lengthening the amortization period will mean deferral of minimum funding payments.
Additionally, the interest rate stabilization ranges most recently extended in 2015 (under the Bipartisan Budget Act of 2015) will be further extended. The relief applies to the range of rates that may be considered for setting the funding Segment Rates. Segment Rates are a 24-month average of recent rates. These Segment Rates are limited to a range around the 25-year average of rates. Currently the range is +/-10% for 2020, increasing 5% per year to 30% in 2024. ARPA has reset the range at +/-5% for 2020 through 2025 and then increase it 5% annually until it reaches 30% in 2030. Further, each of the three Segment Rates will be limited to a minimum of 5%. The result of these changes will be an increase in rates used for minimum funding determinations and a reduction in the minimum required contribution amounts.
Taken together, these provisions will result in significant current reduction in, and deferral of, minimum funding requirements. Plan sponsors will want to evaluate reductions to quarterly payments in 2021 (beginning with April 1, 2021 for calendar year plans) and to final 2020 payments (due September 15, 2021 for calendar year plans) and further deferral of required contributions for future years. From a plan management perspective, this will reduce the demand on cash contributions and may provide an opportune time to revisit asset allocation. Additional guidance is required regarding restating 2019 valuation results (for which Forms 5500 are already filed for most plans) and for treatment of Prefunding Balances for 2019 and 2020.
Community newspaper plans are addressed through modification of eligibility to be considered for special funding rules to include a wider population of these plans.
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Information provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company.