5 big changes coming to pension law: ERISA revised

The sweep of the pension reforms adopted as part of the federal government’s spending bill passed by the House left a lot of interested parties surprised.

Most of the industry insiders familiar with the extent of the Pension Benefit Guaranty Corp.’s multiemployer plan deficit expected Congress to do no more than extend provisions of the 2006 Pension Protection Act affecting underfunded plans. 

Few expected lawmakers to go as far as they did, nor to act as soon as they did. Highly controversial issues such as PBGC premium increases and the power to suspend benefits would be considered by the next Congress – or so many presumed.

But the 160-page multiemployer amendment – authored by Rep. John Kline, Republican chairman of the Education and Workforce Committee, and Rep. George Miller, Democrat and soon-to-be retired ranking member – accelerated everything.

The Senate must approve the legislation, too, but what follows is a breakdown of the five major areas in the law, and how each will influence multiemployer plans, sponsors and their beneficiaries.

1. Amendments to the PPA

A lot of pension experts expected Congress to take the easy way out, pass a one-year extension to the funding rules in the PPA, and kick the can of reform down the road.

But the reform makes those funding rules permanent. It will also allow plans that expect to reach “critical status” in the next five years to elect to be categorized as critical in the current year. Generally, critical status means plans are less than 65-percent funded, unable to pay benefits within five to seven years, or are expected to have a funding deficiency within four to five years.

The new law also eliminates the penalty for sponsors who increase contributions to an underfunded plan.

2. Mergers and partitions

The PBGC will now have the authority to merge plans together, but only if they determine the merger is in the interests of the participants of at least one of the plans, and not adverse to the other plan or plans in the merger.

Also, PBGC now can grant plans permission to partition when their status is either in critical or declining status. This will have the effect of quarantining the most underfunded sponsors, protecting healthier sponsors from having to absorb greater funding responsibilities.

Sponsor wanting to partition would have to prove they had made the maximum benefit adjustments to avoid insolvency.

The PBGC would have to certify that partitioning a sponsor from one plan will not impair its obligations to other plans.

3. Premium increases

Critics of how Congress has set funding obligations, most notably former PBGC director Josh Gotbaum, have insisted multiemployer plan premiums must be increased to address MEP’s funding deficit.

The new amendment grants Gotbaum his wish. The per-participant premium would be doubled, from the current $13 a head to $26, and it would take affect at the beginning of January.

The PBGC would have more than a year to collect the new premiums and report to Congress, by June of 2016, what affect the increases have had on its 10- to 20-year funding obligations.

If the premium increase proves insufficient, the law then says the PBGC must propose a revised premium schedule.