After a brief volley between the two chambers and some late nights, the House of Representatives on March 10 gave final approval to the $1.9 trillion COVID relief bill, which includes the Butch Lewis Emergency Pension Plan Relief Act.
Approved by the House on a near party-line vote of 220-211, with one Democrat voting no, the American Rescue Plan Act of 2021 (H.R. 1319) is now cleared for President Biden, who is expected to sign the measure in the next couple of days. The House’s passage of the Senate amendment to H.R. 1319 comes following an all-night, 25-hour debate by the Senate, which approved an amended version of H.R. 1319 in a 50-49 vote on March 6.
In the retirement policy space, the final version of H.R. 1319 does not include a provision that would have frozen the cost-of-living adjustments (COLAs) for the annual contribution limit for defined contribution plans and for the maximum annual benefit under a defined benefit plan, but it does provide funding relief for single and multiemployer pension plans.
Multiemployer Plan Funding Relief
Special Financial Assistance Program (section 9704): A key component of the Butch Lewis multiemployer relief package is to create a “special financial assistance” program under which cash payments—or grants—will be made by the PBGC to financially troubled multiemployer plans.
Under the legislation, those grants will come from Treasury’s general fund, rather than from the PBGC’s existing multiemployer revolving fund. As such, money will be transferred from the general fund to a new fund within the PBGC and then disbursed to plans. The Congressional Budget Office estimates that the grants will total $86 billion.
Eligible multiemployer pension plans include plans in critical and declining status, and plans with significant underfunding with more retirees than active workers in any plan year beginning in 2020 through 2022. Plans that have suspended benefits and certain plans that have already become insolvent will also be eligible.
The PBGC will be required to publish requirements for the grant applications within 120 days of the date of enactment, and applications will have to be submitted by Dec. 31, 2025. During the first two years after enactment, the PBGC is permitted to give priority to plans with large, expected assistance and plans expected to face insolvency within five years.
Adjustments to funding standard account rules (section 9703): Following the 2008 financial crisis, multiemployer plans were allowed to amortize investment losses from 2008 or 2009 over a period of 30 years. Under the legislation, for investment losses or reductions in regularly scheduled employer contributions, a plan could use a 30-year amortization base to spread out losses over time. This provision is effective for plan years ending on or after Feb. 29, 2020.
Other multiemployer plan relief provisions include:
- temporary delay of designation of multiemployer plans as in endangered, critical or critical and declining status (section 9701); and
- temporary extension of the funding improvement and rehabilitation periods for multiemployer pension plans in critical and endangered status for 2020 or 2021 (section 9702).
The legislation also increases premium rates for multiemployer plans to $52 per participant starting in calendar year 2031, with the premium rate indexed for inflation.
Single Employer Plan Funding Relief
The Butch Lewis Act also provides single-employer plan funding relief by extending the amortization period for funding shortfalls and the pension funding stabilization percentages, along with modifying the special rules for minimum funding standards for community newspaper plans.
Extended amortization for single employer plans (section 9705): The legislation sets all previous plan funding shortfalls to zero, thus permitting a “fresh calculation” of plan funding deficiencies. These newly calculated shortfalls and all future funding shortfalls will be paid off over a period of 15 years rather than the current-law period of seven years.
Extension of pension funding stabilization percentages for single employer plans (section 9706): To preserve the stabilizing effects of smoothing, the provision revises the specified percentage ranges for determining whether a segment rate must be adjusted upward or downward. The specified percentage range for a plan year will be determined by reference to the calendar year in which the plan year begins as follows:
- 90% to 110% for 2012 through 2019;
- 95% to 105% for 2020 through 2025;
- 90% to 110% for 2026;
- 85% to 115% for 2027;
- 80% to 120% for 2028;
- 75% to 125% for 2029; and
- 70% to 130% for 2030 or later.
The provision further provides that if the average of the first, second or third segment rate for any 25-year period is less than 5%, such average shall be deemed to be 5%. In addition, for purposes of the additional information that must be provided in a funding notice for an applicable plan year, an applicable plan year includes any plan year that begins after Dec. 31, 2011, and before Jan. 1, 2029. The provision is effective for plan years beginning after Dec. 31, 2019.
Special rules for community newspaper plans (section 9707): The legislation also expands the special funding rules enacted under the SECURE Act to certain community newspaper pension plans that did not qualify under the eligibility rules. In general, the legislation allows community newspapers to reduce the amount they contribute to their pension plans by choosing a higher interest rate of 8%, and allow plans to fund their shortfall over a period of 30 years.
Section 162(m) limit (section 9708): In general, final version of H.R. 1319 broadens the $1 million deductibility cap under Section 162(m) to expand the definition of “covered employee” to pick up the five highest compensated employees, without regards to principal executive officer, principal financial officer or those required to be reported to shareholders under the Securities Exchange Act by reason of such employee being among the three highest compensated officers for the tax year. This change is effective for tax years beginning after Dec. 31, 2026.
Furthermore, the existing Internal Revenue Code section specifying that a “covered employee” includes those who were covered employees of the taxpayer (or any predecessor) for any preceding taxable year beginning after Dec. 31, 2016, still applies for purposes of the CEO, CFO and the three highest compensated officers (the “once-a-covered-employee, always-a-covered-employee” rule).
Other Provisions
While not directly related to retirement policy, additional provisions that might be of interest include:
- an increase in exclusion for employer-provided dependent care assistance (section 9632);
- an extension and modification of credits for paid sick and family leave (section 9641);
- an extension and modification of the employee retention credit (section 9651); and
- modification of the tax treatment of student loan forgiveness (section 9675).
The legislative text of the final version of H.R. 1319 is available here.
A Joint Tax Committee revenue table providing an outline of the bill’s tax provisions is available here.
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