How Current Legislation Could Impact Multiemployer Plans Facing Insolvency

September 30, 2019

The pros & cons of the Rehabilitation for Multiemployer Pensions Act of 2019

It’s no secret that thousands of multiemployer retirees will need help with their retirement over the next decade. And while many multiemployer plans face insolvency, there’s potential legislation pending that may help some. Like many things, the devil is in the details and multiemployer plan sponsors need to fully understand:

  1. Who is eligible
  2. Loan details and conditions
  3. Timing/how long it could take to pass/implement
  4. Potential success rate
  5. Repayment stipulations

The Rehabilitation for Multiemployers Pensions Act of 2019, or H.R. 397, would provide relief to qualified multiemployer plans through government loans and grants. The plan would receive a 30-year loan and would then repay only the interest portion of the loan for 20 or more years. After the 30-year period closes, the loan should be repaid in full.

Too good to be true? Maybe. The Congressional Budget Office (CBO) conducted an analysis of the proposed plan. Their results showed the legislation would:

  • Be expensive; approximately $39.7B paid out in loans to certain multiemployer pension plans
  • Likely defer insolvency for some plans (25% projected of those applying) but will not keep them solvent throughout the 30-year period to repay the loan in full
  • Defer insolvency for the other 75% of plans that apply - however, most of these likely will be insolvent within 10 years of loan repayment

A recent PlanSponsor article, “CBO Says Rescue Plan for Multiemployer Pensions Won’t Help”, points to estimates that show the shortcomings of the legislation. But also consider that the CBO is looking only at costs and ultimate effects. They do not address that deferral of insolvency can allow time for:

  • Further action on the plans
  • Hope that the unexpected will solve the issues
  • Different legislation

From our perspective, this legislation will face major hurdles in the Senate, and we are advising our clients to review the provisions and whether this financial assistance can work for their specific situation. As with any legislative, regulatory or market change and trends, we keep our clients up to date on any developments. In the meantime time, feel free to ask me a question. 

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Legal Note

Information provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company (SEI). This material represents an assessment at a specific point in time and is not intended to be a forecast of future events. The content is for educational purposes only.