Tag: American Rescue Plan Act of 2021

So, Can States Cut Taxes or Not?

Mary Pat Campbell

Link: https://www.governing.com/finance/So-Can-States-Cut-Taxes-or-Not.html

Excerpt:

Most observers believe that the Treasury will interpret the law narrowly. Rather than seeking to claw back funds from any states passing tax cuts or credits, the feds are considered likely to challenge only those states that clearly use federal dollars to pay for them. “Nothing in the act prevents states from enacting a broad variety of tax cuts,” Treasury Secretary Janet Yellen wrote in a response to the AGs. “It simply provides that funding received under the act may not be used to offset a reduction in net tax revenue resulting from certain changes in state law.”

But the fact that the law blocks federal money from being used even indirectly to pay for tax cuts has state officials not just worried but angry. “Democrats in Washington and in the White House are not going to tell me, or the Georgia General Assembly, that we can’t cut taxes for hard-working Georgians,” Gov. Brian Kemp complained at a news conference last month.

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That prohibition lasts as long as the stimulus dollars are spent, which will be into 2024. And there are limits, Walczak notes, on where and how states can spend federal aid. They can use the money to address pandemic and health needs, for example. While those are clearly ongoing, much of the cost of vaccine supply and distribution has been underwritten by the feds. Other costs in these areas have already been addressed by last year’s federal CARES Act, which some states struggled to spend.

Author(s): Alan Greenblatt

Publication Date: 7 April 2021

Publication Site: Governing

Will States Resist Fresh Billions for Medicaid Expansion?

Mary Pat Campbell

Link: https://www.governing.com/now/Will-States-Be-Able-to-Resist-Billions-for-Medicaid-Expansion.html

Excerpt:

As part of the most recent federal stimulus, states that haven’t expanded Medicaid under the Affordable Care Act can receive additional matching funds. Rather than paying 10 percent of the cost for new recipients, they’d only have to pay 5 percent over the next two years. Additional subsidies mean they would actually cost themselves money by refusing to expand. Florida, for instance, would come out ahead by $1.25 billion, even after paying its share of expanded coverage. Still, Gov. Ron DeSantis and legislative leaders remain opposed.

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It’s true that the 95 percent match rate will only last for two years. But plenty of states have put in place triggers that would end their expansion programs if the federal share ever dipped below 90 percent, notes Trish Riley, executive director of the National Academy for State Health Policy.

Author(s): Alan Greenblatt

Publication Date: 31 March 2021

Publication Site: Governing

Multiemployer Pensions: Will the Recent Bailout Destroy Pensions (in the Long Run)?

Mary Pat Campbell

Link: https://marypatcampbell.substack.com/p/multiemployer-pensions-will-the-recent

Graphic:

Excerpt:

I think it unlikely that Congress, at least this Congress, will pass any MEP reforms. The bill allowing for MEP benefit cuts passed under Obama, during his second term – with a Republican House and a Democratic Senate.

There may eventually be MEP reforms, but with a big cash injection into Central States Teamsters, the reckoning day has been pushed off.

The real crisis was Central States Teamsters going under. It would have taken down the PBGC. The puny plans like Warehouse Employees Union Local No. 730 Pension Trust (total liability amount: $474,757,777) are drops in the bucket compared with Central States (total liability amount: $56,790,308,499).

Author(s): Mary Pat Campbell

Publication Date: 5 April 2021

Publication Site: STUMP at substack

ARPA and Pension Plans: A Closer Look

Mary Pat Campbell

Link: https://www.asppa-net.org/news/arpa-and-pension-plans-closer-look

Excerpt:

Contribution Requirements. Callan expects that higher discount rates and longer periods for shortfall amortization probably will reduce pension plan sponsors’ contribution requirements. Further, they expect that effect to be greatest for plans with smaller normal costs and/or larger funding shortfalls.  
Callan continues that if smoothing is ever fully phased out, they anticipate contribution requirements would increase as discount rates “finally decline from historical highs to match market conditions,” but they also add that the longer amortization period “does provide a permanent reduction in annual cash requirements.”

The changes to the minimum funding requirements, Cheiron says, will result in lower minimum funding requirements. They will not affect segment rates used for other purposes such as calculation of lump sum benefits and the maximum deductible limit. 

Author(s): John Iekel

Publication Date: 29 March 2021

Publication Site: ASPPA

Pension and Executive Compensation Provisions in the American Rescue Plan Act

Mary Pat Campbell

Link: https://www.seyfarth.com/news-insights/pension-and-executive-compensation-provisions-in-the-american-rescue-plan-act.html

Excerpt:

Seyfarth Synopsis: On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (“ARPA”), the $1.9 trillion COVID-19 relief bill.  ARPA includes various forms of multiemployer and single employer pension plan relief, as well as certain executive compensation changes under Section 162(m) of the Internal Revenue Code (“Code”), which are discussed further below. Please see our companion Client Alert on the other employee benefit items of interest in ARPA here.

Author(s): Seong Kim, Christina M. Cerasale, Kaley M. Ventura, Alan B. Cabral

Publication Date: 11 March 2021

Publication Site: Seyfarth

Will American Rescue Plan Act Multiemployer Pension Provisions Bring Relief To Employers?

Mary Pat Campbell

Link: https://www.jdsupra.com/legalnews/will-american-rescue-plan-act-1713755/

Excerpt:

Since withdrawal liability represents the excess of the plan’s liabilities over its assets, some employers may expect that this massive influx of cash would reduce or eliminate their withdrawal liability. As of this date, however, the impact of EPPRA on an employer’s ultimate liability is unclear. The law as originally passed by the House of Representatives expressly excluded any financial assistance from the withdrawal liability calculus for a period of 15 years. However, this fund-friendly provision was struck from the bill during the Senate approval process and was not in the bill signed by President Joe Biden. In other words, under current law (e.g., EPPRA) and in the absence of anticipated regulations, an employer’s withdrawal liability could potentially be reduced or eliminated in its entirety. Unfortunately for employers, however, there is a catch.

Under EPPRA, PBGC is authorized to “impose, by regulation or other guidance, reasonable conditions on an eligible multiemployer plan that receives special assistance relating” to both “reductions in employer contribution rates” and “withdrawal liability.” The 15-year provision and the broad and express regulatory authority granted to PBGC by the statute has many practitioners (including the authors) expecting that PBGC will issue guidance similar to the excised provision. The most likely scenario is that an employer’s withdrawal liability will be calculated without regard to any EPPRA “special financial assistance” for a period of 15 years (consistent with the excised provision) or 10 years (the period for which MPRA benefit suspensions are disregarded for withdrawal liability purposes under ERISA Section 305(g)). Until PBGC issues this much-needed guidance, the exact impact of EPPRA on employers will be unknown.

Author(s): Paul Friedman, Robert Perry, David Pixley

Publication Date: 16 March 2021

Publication Site: JD Supra

MoneyPalooza Monstrosity: State and Local Governments Should Pay Down Pension Debt

Mary Pat Campbell

Link: https://marypatcampbell.substack.com/p/moneypalooza-monstrosity-state-and

Graphic:

Excerpt:

If a state or local government’s public pension funds have large unfunded liabilities, those liabilities accrue at the assumed rate of return on the assets that should have been there to cover that liability.

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The point is this: if it makes sense to pay down the pension unfunded liability with muni bonds, thus creating new liabilities and thus new leverage, it makes even more sense to take a “windfall” of cash and pay down the pension debt, which creates no new state/local government liabilities

Author(s): Mary Pat Campbell

Publication Date: 26 March 2021

Publication Site: STUMP on Substack

Seriously Underfunded Multiemployer Defined Benefit Pension Plans—Relief Finally Arrives

Mary Pat Campbell

Link: https://www.natlawreview.com/article/seriously-underfunded-multiemployer-defined-benefit-pension-plans-relief-finally

Excerpt:

The Pension Relief Act provides that for the first two years after enactment, applications for special financial assistance may be filed only by the following:

plans that are insolvent or likely to become insolvent within five years of the date of enactment of the Pension Relief Act;

plans that have a present value financial assistance that exceeds $1 billion if special financial assistance is not provided;

plans that received approval under MPRA to suspend benefits; or

plans as otherwise determined by the PBGC.

Author(s): Grace H. Ristuccia, Thomas Vasiljevich

Publication Date: 16 March 2021

Publication Site: National Law Review

Democrats saved union pensions after Hoffa’s long campaign

Mary Pat Campbell

Link: https://www.nbcnews.com/politics/joe-biden/democrats-saved-union-pensions-after-hoffa-s-long-campaign-n1261125

Excerpt:

This account of the Teamsters’ drive to save retirement plans for millions of pensioners is drawn from interviews with several of the union’s officials, congressional sources and the public record. It begins with one Hoffa, the late Teamsters chief James R. Hoffa, and the Central States pension fund he started. And it ends with a yearslong campaign by his son, James P. Hoffa, to work the levers of influence in Washington to salvage the retirement money of union members.

Every Republican voted against the Covid-19 relief measure, and many of them specifically targeted the pension legislation for derision because they said it was an expensive gift from Democratic leaders to labor allies that would be funded by taxpayers.

“Americans know this bill will benefit states and unions that have been poorly mismanaged,” Rep. Lauren Boebert, R-Colo., said on the House floor.

Author(s): Jonathan Allen

Publication Date: 16 March 2021

Publication Site: NBC News

COMMENTARY: COVID stimulus won’t cure the pension pandemic

Mary Pat Campbell

Link: https://fredericksburg.com/opinion/commentary-covid-stimulus-won-t-cure-the-pension-pandemic/article_d33a07f1-ee2d-59f4-9e24-c7380f2020a8.html

Excerpt:

While state and local governments cannot put their stimulus directly towards pensions, depending on how the federal government enforces this restriction, they will still have the leeway to free up money that can then go towards pensions (or be spent on budgetary items that have been cut in recent years due to growing pension obligations).

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Public pensions will continue to use overly optimistic assumptions about how their investments will perform, accounting tricks that mask the true size of their pension liabilities, and underreport how much money is needed to fund them.

They will also continue to expose themselves to risky investments in order to attempt to shore up funding gaps. In fact, as the fiscal health of pensions plummeted following the 2008 financial crisis, pension plans only doubled down on the practice.

Author(s): Daniel J. Smith, Eileen Norcross

Publication Date: 27 March 2021

Publication Site: The Free Lance-Star

Washington helped Illinois kick the can again, rating agencies affirm, so expect no fiscal reforms – Wirepoints

Mary Pat Campbell
Washington helped Illinois kick the can again, rating agencies affirm, so expect no fiscal reforms – Wirepoints

Excerpt:

The recently signed American Rescue Plan designated about $7.5 billion of new money directly for the state’s government. Tens of billions of more federal dollars indirectly help the Illinois budget by assisting higher education, K-12 schools and municipalities. Direct aid to people and businesses also kept tax revenue flowing at far higher rates than initially projected.

In fact, federal money from the American Rescue Plan alone dwarfs the revenue lost to the state because of COVID and the lockdowns by a stunning 1665%, according to a Tax Foundation estimate.

It should be noted, however, that federal cash has been showered on the entire nation, where it needs it and not. The State of Wisconsin, for example, is getting $3.2 billion in direct money from the American Rescue Plan even though the state has a budget surplus. We are still waiting for a comprehensive analysis of all recent federal aid to determine whether Illinois got more than its fair share. Surprisingly, nobody seems to have offered one yet that includes all units of government and private sector assistance.

Author(s): Mark Glennon

Publication Date: 17 March 2021

Publication Site: Wirepoints

THE ECONOMICS OF THE 2021 AMERICAN RESCUE PLAN: GETTING RELIEF TO THOSE WHO NEED IT

Mary Pat Campbell

Link: https://ideas.darden.virginia.edu/2021-american-rescue-plan

Excerpt:

If you ask Korinek, this is really Economics 101. “It’s about providing insurance to spread out unequal impact,” he says. “Economists generally think that the government should provide such ‘crisis insurance’ whenever the private market can’t. One example is unemployment insurance.”

When we face risks that are individual-specific, notes Korinek, such as the risk that our house may burn down, it’s relatively easy to buy insurance in the marketplace. However, when we’re confronted with unforeseen, economy-wide risks, like pandemics, it is essentially impossible to be insured. “The way I view the hand of the government during a crisis,” says Korinek, “is not that it distorts markets. Rather, it makes up for missing markets. The market is incomplete, and the government is making it work better.”

Author(s): Gosia Glinska, Anton Korinek

Publication Date: 2 March 2021

Publication Site: UVa Darden Ideas to Action