Tag: American Rescue Plan Act of 2021

‘I’ll be robbed twice in one lifetime’: Retirees fearing financial disaster wait for pension rescue

Mary Pat Campbell

Link: https://www.marketwatch.com/story/ill-be-robbed-twice-in-one-lifetime-retirees-fearing-financial-disaster-wait-for-pension-rescue-11630018883

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A law passed in Congress earlier this year promised to reverse some of that damage by offering taxpayer-funded financial assistance to certain troubled pension plans like Podesta-Smallen’s, allowing them to restore benefits to retirees who suffered cuts. But the implementation of the rescue plan has been met with a barrage of criticism from plan trustees, participants and members of Congress who say it’s too tight-fisted with the financial assistance and could leave some plans in a worse financial position than they are in now.

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When the American Rescue Plan was signed into law in March, many of these struggling plans and retirees with sharply reduced benefits thought their troubles were over. The law is expected to provide about $94 billion to eligible multiemployer plans through a financial assistance program designed to stabilize the plans for decades to come and reinstate previously reduced benefits.  

The sense of relief was short-lived, plan trustees and participants say. The Pension Benefit Guaranty Corp., the federal agency charged with protecting the retirement incomes of participants in private-sector defined-benefit pension plans, in early July released regulations detailing the formula for calculating the financial assistance for troubled plans.

In interviews and more than 100 comment letters to the PBGC, plan trustees, consultants, participants and lawmakers say that the rule’s stringent approach to calculating financial assistance means that many plans receiving the assistance won’t make it through the next 30 years as Congress intended, and some won’t even get enough money to cover the benefits they must restore as a condition of getting the cash.

Author(s): Eleanor Laise

Publication Date: 30 August 2021

Publication Site: Marketwatch

PBGC Issues Interim Final Rule on Multiemployer Bailout Plan

Mary Pat Campbell

Link: https://www.ai-cio.com/news/pbgc-issues-interim-final-rule-on-multiemployer-bailout-plan/

Excerpt:

There are four types of multiemployer plans that are eligible to apply for SFA under the PBGC’s regulation:

A plan in critical and declining status as defined by the Employee Retirement Income Security Act (ERISA) in any plan year beginning in 2020, 2021, or 2022.

A plan that had enacted a suspension of benefits approved under ERISA as of March 11, 2021.

A plan certified to be in critical status as defined by ERISA that has a modified funded percentage of less than 40%, and a ratio of active to inactive participants of less than 2:3, in any plan year beginning in 2020, 2021, or 2022.

A plan that became insolvent for purposes of section 418E of the Internal Revenue Code (IRC) after Dec. 16, 2014, when the Multiemployer Pension Reform Act (MPRA) became law, has remained insolvent, and has not terminated under ERISA as of March 11, 2021.

PBGC has prioritized seven groups of plans that qualify for the aid, ranked by the most impacted plans and participants first. The highest priority is given to applications of plans that are projected to become insolvent under ERISA by March 11, 2022, so that they will not have to reduce participant benefits, and to plans that are already insolvent, to help them reinstate benefits, provide makeup payments to participants and beneficiaries, and restore previously suspended benefits.

Author(s): Christine Giordano

Publication Date: 14 July 2021

Publication Site: ai-CIO

PBGC Multiemployer Pension Bailout – The Weeds

Mary Pat Campbell
PBGC Multiemployer Pension Bailout – The Weeds

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The Pension Benefit Guaranty Corporation (PBGC) on July 9, 2021 announced an interim final rule implementing a new Special Financial Assistance (SFA) Program for financially troubled multiemployer defined benefit pension plans.

What struck me:

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It is expected that over 100 plans that would have otherwise become insolvent during the next 15 years will instead forestall insolvency as a direct result of receiving SFA. Section 9704 of ARP amends section 4005 of ERISA to establish an eighth fund for SFA from which PBGC will provide SFA to multiemployer plans under the program created by the addition of section 4262 of ERISA. The eighth fund will be credited with amounts from time to time as the Secretary of the Treasury, in conjunction with the Director of PBGC, determines appropriate, from the general fund of the Treasury Department. Transfers from the general fund to the eighth fund cannot occur after September 30, 2030. (page 6)

Unlike the financial assistance provided under section 4261 of ERISA, which is in the form of a loan and provided in periodic payments, a plan receiving SFA under section 4262 has no obligation to repay SFA, and PBGC must pay SFA in the form of a single, lump sum payment. (page 7)

Author(s): John Bury

Publication Date: 10 July 2021

Publication Site: burypensions

PBGC to Provide Special Financial Assistance to Troubled Multiemployer Plans

Mary Pat Campbell

Link: https://www.pbgc.gov/news/press/releases/pr21-05

Released rule pdf: https://www.pbgc.gov/sites/default/files/sfa/4262-ifr-final-posted.pdf

Excerpt:

WASHINGTON, D.C. — The Pension Benefit Guaranty Corporation (PBGC) today announced an interim final rule implementing a new Special Financial Assistance (SFA) Program for financially troubled multiemployer defined benefit pension plans.  

“The American Rescue Plan provides funding to severely underfunded pension plans that will ensure that over three million of America’s workers, retirees, and their families receive the pension benefits they earned through many years of hard work,” said PBGC Director Gordon Hartogensis. “These benefits are critical to the economic security of so many retirees and their families.” 

The American Rescue Plan (ARP) Act of 2021 (P.L. 117-2) — a historic law passed by Congress and signed by President Biden on March 11, 2021 — contains provisions to provide an estimated $94 billion in assistance to eligible plans that are severely underfunded. Additionally, it assists plans by providing funds to reinstate previously suspended benefits. ARP also addresses the solvency of PBGC’s Multiemployer Insurance Program, which was projected to become insolvent in 2026.  

The interim final rule sets forth what information a plan is required to file to demonstrate eligibility for SFA and the formula to determine the amount of SFA that PBGC will pay to an eligible plan. ARP authorizes PBGC to prioritize SFA applications of plans in specified groups, and the interim final rule identifies the priority order in which such plans are permitted to apply. The interim final rule also outlines a processing system, which will accommodate the filing and review of many applications in a limited amount of time. In addition, it specifies permissible investments for SFA funds and establishes certain restrictions and conditions on plans that receive SFA. 

The interim final rule is posted on PBGC’s website today, July 9, 2021. The rule is also on public inspection today at FederalRegister.gov and is scheduled for publication in the Federal Register on July 12, 2021. PBGC has included a 30-day public comment period in this rulemaking from the date of publication in the Federal Register. All interested parties may submit their comments, suggestions, and views on the rule’s provisions here: reg.comments@pbgc.gov or https://www.regulations.gov. 

Additional information, including Frequently Asked Questions, is available at PBGC.gov/arp. 

Author(s): PBGC press release

Publication Date: 9 July 2021

Publication Site: PBGC

PBGC Rules on Multiemployer Pension Bailout

Mary Pat Campbell
PBGC Rules on Multiemployer Pension Bailout

Excerpt:

The Pension Benefit Guaranty Corporation (PBGC) today announced an interim final rule implementing a new Special Financial Assistance (SFA) Program for financially troubled multiemployer defined benefit pension plans.

Pertinent excerpts coming over the weekend but, for now, it looks like the bailout number moved from $86 billion to $94 billion per the PBGC press release:

Author(s): John Bury

Publication Date: 9 July 2021

Publication Site: burypensions

Update On The Multiemployer Pension Plan Bailout: New Regulations Finally Unveiled

Mary Pat Campbell

Link: https://www.forbes.com/sites/ebauer/2021/07/11/update-on-the-multiemployer-pension-plan-bailout-new-regulations-finally-unveiled/?sh=29d66f215bb2

Excerpt:

The PBGC’s decisions here are not what organizations such as the NCCMP would have liked, although, clearly, it is the PBGC’s job to interpret the law, not to try to fix a poorly-written law.

At the same time, no multiemployer pension plan is worse off with this legislation than without it, even if it isn’t as generous as they would have liked. And nothing prohibits those plans from boosting contributions and using additional contributions to fund future accruals — which would mean that pension plans which express their contributions as fixed dollar amounts, rather than a percentage of pay, will be better positioned to provide for existing employees as well as retirees. What’s more, the calculation of future contributions is based on a one-time open group projection, without being revised from year to year, so that, in principle, if more workers join a plan, the plan will be better off. (Of course, if the projection is too optimistic about the number of future workers, the opposite will be true.)

But, of course, this is $86 billion that could have been spent for other needs, or not spent at all. And, however much advocates profess that they still hope for a more comprehensive revision of funding rules for multiemployer pensions, the poorly-conceived nature of this bailout makes it less, rather than more, likely that both sides of the aisle will come together to repair multiemployer pensions and prevent future bailouts.

Author(s): Elizabeth Bauer

Publication Date: 11 July 2021

Publication Site: Forbes

Judge: Pension fund can’t claim Harvey, Illinois’ federal ARPA aid

Mary Pat Campbell

Link: https://www.bondbuyer.com/news/judge-pension-fund-cant-claim-harvey-illinois-federal-arpa-aid

Excerpt:

A state judge refused to block distribution of Harvey, Illinois’ share of American Rescue Plan Act federal coronavirus aid relief funds after rejecting a pension fund’s claim to the money.

The financially stressed Chicago suburb, which has battled over the last decade with its public safety pension funds, Chicago, and bondholders over its obligations, settled a legal dispute in 2018 with its police and firefighters’ pension funds over past due payments. The settlement gives the funds a share of various funding that flows through the state government.

The firefighters’ fund recently sued Harvey to stake a claim to the ARPA money, arguing it is subject to the 10% claim on city tax and aid funds that are sent directly to the pension fund under the 2018 settlement. The fund asked the court to enjoin Comptroller Susana Mendoza, whose office manages the state’s pension intercept program, from distributing any funds until the case was argued.

Author(s): Yvette Shields

Publication Date: 28 June 2021

Publication Site: Bond Buyer

Illinois Budget Leaves Billions in Federal Rescue Funds on the Table

Mary Pat Campbell

Link: https://www.centerforilpolitics.org/articles/illinois-budget-leaves-billions-in-federal-rescue-funds-on-the-table#new_tab

Excerpt:

The federal government will soon give the cash-strapped state of Illinois $8.1 billion to cope with the fallout from the COVID-19 pandemic, but next year state officials plan to use less than a third of the windfall.

That means that some $5.5 billion in unspent federal cash will remain in state accounts until lawmakers figure out how they want to use it. The state treasurer’s office will invest the money, along with the $38 billion it is already responsible for investing. 

Ironically, Illinois is supposed to get its money faster than many other states because of its urgent need. Most states will get their money from the American Rescue Plan Act in two payments, a year apart. But Illinois is expected to get its full share all at once in the coming months, because it has a high unemployment rate. 

The fact that Illinois is letting so much money sit in the bank, even when it has a long list of pressing financial needs, has a lot to do with the rules the federal government wrote for how states can use the Rescue Act money. 

Author(s): Daniel C. Vock

Publication Date: 6 June 2021

Publication Site: Center for Illinois Politics

Unprecedented federal borrowing floods state budgets

Mary Pat Campbell

Link: https://thehill.com/opinion/finance/556660-unprecedented-federal-borrowing-floods-state-budgets

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Once per calendar quarter, the state of Michigan conducts a Consensus Revenue Estimating Conference that provides updates on both the national and state economies and the state’s fiscal outlook. The May conference each year is especially significant because it sets the official revenue targets for the next fiscal year’s state budget. 

The May meeting packet contained a broad range of data points, but a few jumped out.

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Another chart broke down the components of personal income. Over the previous four quarters, personal income was nearly $3,000 higher than pre-pandemic forecasts had expected. However, employee compensation actually declined by about half that amount. The entire increase is the result of the 53 percent increase in federal transfer payments that have floated U.S. households over the past year.

Author(s): DAVID GUENTHNER

Publication Date: 5 June 2021

Publication Site: The Hill

Cities are getting a bailout from Washington. What should they do with the money?

Mary Pat Campbell
Cities are getting a bailout from Washington. What should they do with the money?

Excerpt:

Transparency is not just a good thing for the public. A study of the 2012 Recovery Act (ARRA) showed that the biggest users of publicly available data were government officials, who used the information to track spending. Cities that do not already issue comprehensive annual financial reports (CAFRs) should adopt them for the benefit of policymakers and the public. Meet or exceed Generally Accepted Accounting Principles (GAAP) and Government Accounting Services Board (GASB) statements in your reporting. Clearly account for liabilities such as pensions, retiree health benefits and infrastructure maintenance and replacement. Have that accounting independently verified.

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According to a January 2021 report from Truth in Accounting, the top 75 US cities have a combined unfunded public pension obligation of more than $180 billion. Cities often underfund these obligations to cover budget shortcomings elsewhere, an irresponsible game of whack-a-mole.

Treasury guidance forbids using ARPA money in pension funds to cover unfunded liabilities from before the COVID emergency. It does allow spending on current payments for either defined benefit or defined contribution plans. Cities could use ARPA funds to provide additional payments to those plans to encourage employees to switch from their traditional pension to a defined contribution plan—which is a much more financially sound position for cities to be in.

Author(s): Patrick Tuohey

Publication Date: 31 May 2021

Publication Site: Better Cities Project

Hutchins Center Fiscal Impact Measure

Mary Pat Campbell
Hutchins Center Fiscal Impact Measure

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Fiscal policy boosted U.S. GDP growth by 8.5 percentage points at an annual rate in the first quarter of 2021, the Hutchins Center Fiscal Impact Measure (FIM) shows. The FIM translates changes in taxes and spending at federal, state, and local levels into changes in aggregate demand, illustrating the effect of fiscal policy on real GDP growth. GDP rose at an annual rate of 6.4% in the first quarter, according to the government’s latest estimate.

The boost to economic growth in the first quarter from fiscal policy is largely the result of two rounds of rebate checks (the $600 per person from legislation enacted in December that was paid in January, and the $1,400 per person from the American Rescue Plan Act that was paid in the last few weeks of March). An uptick in purchases by the federal government, reflecting in part spending on vaccines and processing of Paycheck Protection Program loans, also boosted economic activity.

Author(s): Manuel Alcala Kovalski, Sophia Campbell, Tyler Powell, Louise Sheiner

Publication Date: 1 June 2021 (most recent data update)

Publication Site: Brookings

Illinois looks to its own coffers to pay off MLF loan

Mary Pat Campbell

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202105211243SM______BNDBUYER_00000179-8fa2-d80e-a97d-8fa3c5720001_110.1#new_tab

Excerpt:

Illinois will dip into its growing pot of tax revenues to pay off the remaining $2.175 billion of outstanding debt borrowed through the Federal Reserve?s Municipal Liquidity Facility to manage last year?s COVID-19 tax blows.

The Treasury Department?s interim guidance, released May 10, barring debt repayment as an eligible use of American Rescue Plan dollars threw a wrench ? at least temporarily ? into Chicago’s and Illinois? plans to pay down debt issued last year. Illinois borrowed through the MLF and Chicago issued notes ahead of a planned scoop-and-toss borrowing to stave off deep cuts and layoffs as tax revenues plummeted. Both planned to pay off the debt with ARP funds.

Both planned to lobby the Treasury Department for a guidance change during a 60-day comment period, but Illinois was under the gun to make repayment plans ahead of a May 31 deadline to pass a fiscal 2022 budget. The state is receiving $8.1 billion from the ARP.

Author(s): Yvette Shields

Publication Date: 21 May 2021

Publication Site: Fidelity Fixed Income