Congressional Research Service IF11766.2 (Pension Provisions in the American Rescue Plan of 2021)

Summary

A Congressional Research Service product, IF11766 (version 2), updated March 18, 2021, describing all but one of the pension provisions in Title IX, Subtitle H, of the American Rescue Plan Act of 2021 (P.L. 117-2). It explains that multiemployer defined benefit (DB) pension plans annually certify a zone status, and describes Section 9701's temporary delay of designation of plans as endangered, critical, or critical and declining. It states that for plan years beginning in 2020 or 2021, Section 9702 lengthens the funding improvement or rehabilitation period from 10 years to 15 years, and the period for seriously endangered plans from 15 years to 20 years. It also covers Section 9703's adjustments to funding standard account rules for experience losses.

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Updated March 18, 2021
Pension Provisions in the American Rescue Plan of 2021
This In Focus describes all but one of the pension For plan years beginning in 2020 or 2021, Section 9702
provisions in Title IX, Subtitle H, of the American Rescue lengthens (1) the funding improvement or rehabilitation
Plan Act of 2021 (P.L. 117-2). Another In Focus details the period for plans in endangered or critical status,
special financial assistance to multiemployer plans in respectively, from 10 years to 15 years and (2) the funding
Subtitle H (CRS In Focus IF11765, Special Financial improvement period for plans in seriously endangered
Assistance to Multiemployer Plans). status from 15 years to 20 years. Plan zone statuses are
determined based on their election in Section 9701 of the
Description of Provisions law.

Temporary Delay of Designation of Multiemployer Adjustments to Funding Standard Account Rules
Plans as in Endangered, Critical, or Critical and Multiemployer DB plans have 15 years to make up for plan
Declining Status underfunding resulting from experience losses (such as
Multiemployer defined benefit (DB) pension plans annually investment losses). This process of spreading out payments
certify the plan’s financial status—known as the plan’s zone is known as amortization. Section 9703 permits two years
status. A plan can be in endangered, seriously endangered, of experience losses (such as investment losses and other
critical, or critical and declining status (or no category if losses related to the Coronavirus Disease 2019, including
none of these apply). Multiemployer DB plans that report a those related to reductions in contributions, reductions in
status other than no category must take measures to employment, and deviations from anticipated retirement
improve their financial condition. Section 9701 permits rates) to be amortized over 30 years instead of 15 years.
plans to keep their zone status from the previous plan year, Plans receiving special financial assistance (as described in
at the discretion of the plan, for either (1) the first plan year the law and in CRS In Focus IF11765) are ineligible for this
beginning during the period from March 1, 2020, through provision.
February 28, 2021, or (2) the succeeding plan year. If a plan
was in endangered or critical status in the previous plan Extended Amortization for Single Employer Plans
year, it does not have to update its funding improvement or The Employee Retirement Income Security Act of 1974
rehabilitation plan (see next section of this In Focus) until (P.L. 93-406) contains funding rules, such as contribution
the subsequent plan year. Plans that keep the previous requirements, for single-employer DB pension plans. The
year’s status but become critical during the year of election funding rules allow single-employer DB plans to amortize
are deemed to be in critical status. Among other conditions, underfunding resulting from, for example, investment
plans in critical status do not pay the excise tax for failing losses, over seven years. Section 9705 permits plans to
to meet minimum funding standards. amortize underfunding over 15 years.

Temporary Extension of the Funding Improvement Extension of Pension Funding Stabilization
and Rehabilitation Periods for Multiemployer Plans Percentages for Single Employer Plans
in Critical and Endangered Status for 2020 or 2021 A pension plan’s benefits are a plan liability spread out over
Under current law, multiemployer DB plans in critical or many years in the future. These future benefits are
endangered status must take measures to improve their calculated and reported as present values (also called
financial condition. Plans in endangered and seriously current values) through a process called discounting, which
endangered status must adopt funding improvement plans. requires the use of a specified interest rate. Under current
These plans include a range of options (such as increased law, this rate is based on three different segment rates,
contributions and reductions in future benefit accruals) that, which are calculated as the average of the corporate bond
when adopted, will reduce endangered plans’ underfunding yields within each segment for the preceding 24 months.
by 33% during a 10-year period or seriously endangered
plans’ underfunding by 20% during a 15-year period. The Moving Ahead for Progress in the 21st Century Act
(MAP-21; P.L. 112-141) created a mechanism, called a
Also under current law, plans in critical status must adopt a funding corridor, to determine the minimum and maximum
rehabilitation plan. A rehabilitation plan is a range of interest rates as a percentage below and above the 25-year
options that, when adopted, will allow the plan to emerge average of historical corporate bond yields. Figure 1 shows
from critical status during a 10-year rehabilitation period. If the funding corridor. If the 24-month segment interest rate
a plan cannot emerge from critical status by the end of the is higher than the maximum (point 1), it is adjusted
rehabilitation period using reasonable measures, it must downward to the maximum. If the segment rate is within
install measures either to (1) emerge from critical status at a the corridor (point 2), the rate is not adjusted. If the 24-
later time (after the end of the rehabilitation period) or (2) month segment interest rate is below the minimum
forestall insolvency.

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Pension Provisions in the American Rescue Plan of 2021

percentage of the funding corridor (point 3), the interest rate
is adjusted upward to the minimum.

Figure 1. Hypothetical Application of Segment Rate Stabilization Provision

Source: Congressional Research Service.
Notes: MAP-21 = Moving Ahead for Progress in the 21 st Century Act (P.L. 112-141); HTF = Highway and Transportation Funding Act of 2014
(P.L. 113-159); BBA = Bipartisan Budget Act of 2015 (P.L. 114-74). The segment rates are calculated as the average of the corporate bond
yields within the segment for the preceding 24 months. The three segment rates are calculated as the average of the corporate bond yields for
the preceding 24 months with maturities of (1) less than five years, (2) five to 20 years, and (3) more than 20 years, respectively.

In Figure 1, the orange line shows the average of a corporations. Section 9708, added by Senate substitute
segment’s interest rates for the prior 25 years. The gold, amendment no. 891, expands the definition of covered
green, and blue lines indicate the minimum and maximum employees to include the employer’s five highest
rates around the 25-year average under MAP-21 and two compensated employees (other than those already included
extensions (P.L. 113-159 and P.L. 114-74). The red lines in Section 162) starting in 2027.
indicate the minimum and maximum rates around the 25-
year averages as outlined in Section 9706. The funding The amendment removed a provision that would have
corridor narrows from the current floor of 90% to 95% and frozen annual cost-of-living adjustments for certain DB and
from the current ceiling of 110% to 105% for years 2020- defined contribution limits.
2025. After 2025, the corridor is to begin widening. Interest
rates are currently—and likely will be for the foreseeable Policy Discussion
Funding relief for pension plans, whether through extended
future—below the floor. A widening corridor results in a
progressively lower floor for the adjusted interest rate, amortization or changes to interest rates, allows employers
which increases the present value of future benefit to contribute less to their plans in the near term, which
obligations and causes required plan contributions to could be beneficial to plan sponsors in the case of financial
difficulty. When employers contribute less to their pension
increase. Section 9706 also sets a floor of 5% for the 25-
year average of corporate bond yields (the horizontal plans, their taxable income increases, which results in
orange line in Figure 1). For more information on the increased Treasury revenue. Funding relief can also result
funding corridor, see CRS Report R46366, Single-Employer in plans being less well-funded. This increases the amounts
plans pay in PBGC variable-rate premiums. PBGC could
Defined Benefit Pension Plans: Funding Relief and
Modifications to Funding Rules. pay more in the event of termination of single-employer
plans or insolvency of multiemployer plans.
Modification of Special Rules for Minimum Funding
Standards for Community Newspaper Plans As additional plan sponsors receive special funding rules
Section 115 of the SECURE Act, enacted as part of P.L. (such as those for certain community newspaper plans),
116-94, provided special funding rules for pension plans other plan sponsors might request similar treatment.
operated by certain community newspapers. For these
plans, P.L. 116-94 increased the interest rate to 8% and For FY2021-FY2031, the Joint Committee on Taxation
extended the amortization period from seven to 30 years. estimated the revenue from the single-employer extended
Section 9707 extends these funding rules to additional amortization and funding stabilization provisions at $22.8
community newspaper plans. billion, the community newspaper provision at $311
million, and the employee remuneration limitation
Expansion of Limitation on Excessive Employee provision at $7.8 billion. For FY2021-FY2031, the
Remuneration Congressional Budget Office estimated the multiemployer
Title 26, Section 162, of the U.S. Code limits the tax
plan provisions (which included the special financial
deductibility of annual employee compensation above
$1,000,000 for certain covered employees in public
https://crsreports.congress.gov
Pension Provisions in the American Rescue Plan of 2021

assistance provision not discussed in this In Focus; see Elizabeth A. Myers, Analyst in Income Security
IF11765) at a cost of $81.2 billion. John J. Topoleski, Specialist in Income Security
IF11766

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