KNOWLEDGE CENTER

Knowledge Center Archive

Jul
6
2010

Summary of Defined Benefit Funding Relief for Multiemployer Plans

As multiemployer pension plans continue to try to determine the long-term impact of recent market volatility, some funding relief has arrived. On June 25, 2010, President Obama signed the "Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010” (H.R. 3962) into law, thus providing multiemployer plans with some funding relief. Below are details around the two aspects of the new law that will most significantly impact multiemployer pension plans:

1. Amortization Extension

Multiemployer pension plans had previously been expected to amortize losses over a 15-year period. To offset some of the recent investment losses, the new law allows for plans to choose a 30-year amortization period. The plan could use the extended amortization period for investment losses in either or both of the first two plan years ending on or after August 2008.

Under the law, if a multiemployer plan decides to use the 30-year-amortization period, it might be subject to a restriction on benefit increases for two years. If a plan can provide actuarial certification that the increases are being paid by additional contributions from the employers and that acceptable funding levels are expected to be met, that restriction would be waived.

2. Asset Smoothing Measures

The new law allows multiemployer plans to extend asset smoothing up to ten years (vs. five years under the current rules). Plans are permitted to do this for either one or both plan years after August 2008. The law also requires smoothed asset value to be within 80% to 130% of fair value, rather than the current requirement of 80% to 120%.

Additional Multiemployer Plan Relief Proposal

The relief outlined above is part of the new law (H.R. 3962) that was signed on June 25, 2010. There is also a separate bill called the “Create Jobs & Save Benefits Act of 2010” (SB 3157) that is being sponsored by Senator Bob Casey (D-Pennsylvania). As of June 2010, that bill had only been through a committee hearing and had not been considered fully by either the House or the Senate. Details of that proposed bill include:

  • If enacted in its current form, it would allow a multiemployer plan to separate the liabilities owed to members from now-bankrupt companies who failed to fund their withdrawal liabilities. Assets equal to a maximum of five years of projected benefit payments for those participants would be moved to the separate account. Those assets and the correlating liabilities would then be transferred to the Pension Benefit Guaranty Corporation (PBGC) which would manage the benefit payments. At this time, it is not clear whether this bill will move any further or ultimately be enacted.

For more information please email seiresearch@seic.com. This information is for educational purposes only. Not intended to be investment, legal and/or tax advice. Please consult your financial/tax advisor for more information. Information provided by SEI Investments Management Corp., a wholly owned subsidiary of SEI Investments Company. ©SEI 2010