Multiemployer Defined Benefit (DB) Pension Plans

Multiemployer defined benefit (DB) pension plans are private-sector pensions sponsored by more than one employer and maintained as part of a collective bargaining agreement. In DB pension plans, participants receive monthly benefits in retirement based on a formula. In a multiemployer DB pension, the formula typically multiplies a dollar amount by the number of years of service the employee has worked for any of the employers that participate in the DB plan. Multiemployer plans are distinct from multiple-employer plans, which are sponsored by more than one employer but are not maintained as part of a collective bargaining agreement.

Multiemployer pension plans pool risk so that the withdrawal of a few employers from the plan does not place the plan in financial jeopardy, because withdrawing employers are required to pay for their share of unfunded benefits (called withdrawal liability). In recent years, an increasing number of employers have left multiemployer pension plans (either voluntarily or through employer bankruptcy). In addition, declines in the value of plan assets (such as during the 2007-2009 recession) have resulted in the underfunding of many plans—some of which have large amounts of underfunding. When contributing employers withdraw from plans and do not pay their share of unfunded benefits, the underfunding becomes the responsibility of the remaining employers in the plan, which results in increasing contributions.¹ When those employers remaining in a plan are unable to meet the required larger contributions, the plan may face insolvency.

Pension Benefit Guaranty Corporation's Multiemployer Insurance Program

The Pension Benefit Guaranty Corporation (PBGC)—a federally chartered corporation—insures the benefits of participants in private-sector DB pension plans up to a statutory maximum. PBGC operates two separate insurance programs: one for single-employer plans and one for multiemployer plans. This report focuses on multiemployer plans.

When a multiemployer DB plan becomes insolvent, PBGC provides financial assistance to the plan (referred to as traditional financial assistance). An insolvent multiemployer plan is one that does not have sufficient resources from which to pay promised benefits. PBGC provides financial assistance to insolvent multiemployer plans in the form of loans, although PBGC does not expect the loans to be repaid.

Because of the projected increase in multiemployer plan insolvencies, the PBGC multiemployer program was projected to become insolvent in 2025. This would have resulted in participants in insolvent plans potentially receiving only a small fraction of their promised benefits. In order to ensure that participants would not lose their promised benefits, Congress established the Special Financial Assistance (SFA) program. SFA was enacted in the American Rescue Plan Act of 2021 (ARPA; P.L. 117-2).

Special Financial Assistance

SFA provides financial assistance in the form of grants to financially troubled multiemployer DB plans meeting specified criteria.² SFA is administered by PBGC and financed by appropriations from Congress. The amount of SFA a plan receives should enable the plan to pay benefits through 2051.

ARPA outlined eligibility criteria to apply for SFA. PBGC final regulations on SFA provided more details on eligibility criteria (discussed later in this report).³ Applications for SFA must be filed by December 31, 2025 (or by December 31, 2026, for revised applications).

ARPA authorized PBGC to issue regulations specifying that for two years following enactment, only plans meeting certain conditions are able to apply for SFA. PBGC took a staggered approach to receiving applications and created six classifications (or priority groups). As of April 11, 2023, 41 plans in the first three priority groups have been approved for SFA.⁴ The dollar amount of SFA for approved plans is $46.3 billion.

PBGC estimates that over 250 plans covering more than 3 million participants and beneficiaries would receive approximately $97 billion in SFA.⁵ Due to SFA, PBGC estimated that its multiemployer program is likely to remain solvent for the next 40 years.

Based on PBGC's estimates, about one-third of multiemployer plan participants are in plans that are or are potentially eligible for SFA.⁶ Most of the remaining participants are in plans that likely are not eligible to apply for SFA because their plans were not financially troubled during the eligibility period. Because SFA did not make any changes to multiemployer plan funding rules, some of these plans might face financial difficulties in the future. Stakeholders might have an interest in monitoring the financial health of these plans.

Data on Multiemployer Plans

To determine plan funding and participant counts for multiemployer plans, CRS examined plan filings in the Department of Labor (DOL) public-use 2020 Form 5500 data (the most recent complete data).⁷ Nearly all private-sector pension plans (including multiemployer DB plans) are required to file Form 5500 with the Internal Revenue Service (IRS), DOL, and PBGC. The Form 5500 information includes breakdowns on the number of plan participants, financial information about the plan, and details of companies providing services to the plan. Most multiemployer DB plans are specifically required to file a Schedule MB, which provides detailed information on plan assets and liabilities, and a status of the plan's financial condition as being in one of several categories (referred to as the plan's zone status).

Zone status categories are described in Table 1. Several of the categories refer to the funded percentage, which is a measure of a plan's ability to pay benefits owed based on the plan's assets. For example, a funded percentage of 100% indicates that a plan's current value of assets is adequate to cover the present value of future owed benefits, and a percentage lower than 100% indicates that the value of a plan's liabilities exceeds the value of its assets.

Eligibility Criteria to Apply for Special Financial Assistance

A plan is eligible for SFA if it (1) is in critical and declining status in any plan year from 2020 through 2022; or (2) had an application to suspend benefits under the Multiemployer Pension Reform Act of 2014 (MPRA, enacted as part of P.L. 113-235) approved prior to the enactment of ARPA (March 11, 2021); or (3) was in critical status, had a modified funded percentage of less than 40%, and the ratio of active to inactive participants was less than 2:3 in any plan year from 2020 through 2022; or (4) became insolvent after December 14, 2014, and was not terminated by the date of enactment of ARPA.⁸

This report puts plans into one of two categories: (1) those that have been approved for SFA or are potentially eligible to apply for SFA and (2) those that did not meet SFA eligibility criteria based on the most recent data.

The following describes the four eligibility criteria and the methodology used to determine if plans met each criterion.⁹

• 1. In critical and declining status in any plan year from 2020 through 2022. Multiemployer DB plans in endangered, seriously endangered, critical, or critical and declining status must provide notice to participants, beneficiaries, the bargaining parties, PBGC, and DOL. DOL posts these notices on its website, but the DOL website does not always have notices posted for all of the plans with these status designations.¹⁰ Eligible plans are those with (1) a critical and declining zone status in the 2020 Form 5500 Schedule MB data or (2) a critical and declining status notice to DOL for plan year 2020, 2021, or 2022.¹¹
• 2. Had an application to suspend benefits under the Multiemployer Pension Reform Act of 2014 (MPRA, enacted as part of P.L. 113-235) approved prior to the enactment of ARPA (March 11, 2021). MPRA permitted plans in critical and declining status to apply to suspend benefits if doing so would enable the plan to avoid insolvency. The Department of the Treasury posts plan applications and approval status for MPRA benefit suspensions on a publicly available website.¹² As of March 11, 2021 (the date of enactment of ARPA), 18 plans had been approved to suspend benefits and so are eligible for SFA under this criterion.
• 3. Is in critical status, has a modified funded percentage of less than 40%, and has a ratio of active to inactive participants of less than 2:3 in any plan year from 2020 through 2022.¹³ To determine which plans met this eligibility criterion, the analysis used plan filings in 2020 Form 5500 data.¹⁴
• 4. Became insolvent after December 14, 2014, and was not terminated by the date of enactment of ARPA. PBGC provides data on multiemployer DB plan insolvencies, mergers, and terminations, including dates of when such actions occurred.¹⁵ This data was used to identify which plans became insolvent after December 14, 2014, and were not terminated by the date of enactment of ARPA (P.L. 117-2).

The two categories of plans in this report—those approved or potentially eligible for SFA and those that did not meet SFA eligibility criteria based on the most recent data—should not be interpreted as definitive. Eligibility for SFA under some criteria—such as those that have had applications to suspend benefits under the MPRA approved—can be determined with certainty. However, eligibility under other criteria depends on the financial condition of plans in 2020-2022. Data is not yet available for these years for all plans. This report uses the most recently available public data to identify plans that might be eligible. Additional plans might become eligible for SFA based on their financial conditions in plan years 2021 or 2022. Not all plans that are eligible will apply for SFA.

Multiemployer DB Plan Funding and Participant Data

Table 2 provides data on aggregate underfunding and the number of participants, by zone status, for (1) all multiemployer plans and (2) plans that did not meet SFA eligibility criteria based on 2020 Form 5500 data. Table 2 includes 1,209 plans that filed Schedule MB (thus, reported a zone status) in the 2020 Form 5500 dataset.¹⁶

Table 2 includes two measures of underfunding: one calculated using the current value of liabilities (the Retirement Protection Act of 1994, or RPA '94, basis) and one calculated using the actuarial value of liabilities.¹⁷ The two values of liabilities often differ. The main difference is the value of the discount rate that is used to value plan liabilities. The actuarial valuation of liabilities typically discounts them using the expected return on assets. The RPA '94 current liability uses a discount rate based on interest rates on 30-year Treasury securities. When RPA '94 rates are lower than the expected return on assets (which has typically been the case), the RPA '94 valuation method results in a higher valuation of plan liabilities compared to the actuarial valuation method. In the 2020 Form 5500 filings, the median RPA '94 rate used by plans was 2.95%, and the median interest rate for the actuarial value of liabilities was 7%.¹⁸

CRS analysis of filings in the 2020 Form 5500 data in Table 2 indicated the following:

• Green Zone: There were 814 plans covering 6.3 million participants in the green zone, and 811 plans covering 6.3 million participants did not meet SFA eligibility criteria. This indicates that three green zone plans with fewer than 5,000 participants met SFA eligibility criteria.¹⁹ Green zone plans that did not meet SFA eligibility criteria based on the most recent data had underfunding of $412.1 billion (on an RPA '94 basis) or $38.1 billion (on an actuarial basis).
• Endangered or Seriously Endangered: There were 105 plans either endangered or seriously endangered. These plans covered about 1 million participants. None of these plans met SFA eligibility criteria based on the most recent data. These plans had underfunding of $96.1 billion (on a RPA '94 basis) or $23.9 billion (on an actuarial basis).
• Critical: There were 168 plans covering 2.2 million participants in critical status, and 74 of these plans covering 1.3 million participants did not meet SFA eligibility criteria based on the most recent data. Plans that are in critical status are classified by whether they are (1) projected to emerge from critical status within the rehabilitation period, or (2) not projected to emerge from critical status (and will either remain in critical status indefinitely or become insolvent within 30 years—in which case, the rehabilitation plan is designed to forestall insolvency).²⁰ Of the 168 plans in critical status, 109 plans were expected to emerge from critical status by the end of the rehabilitation period, and 59 did not expect to be able to emerge from critical status by the end of the rehabilitation period and would remain in critical status past the end of the rehabilitation period (or indefinitely), or were projected to become insolvent. Among the 74 plans in critical status not meeting SFA eligibility criteria based on the most recent data, 52 were expected to emerge from critical status by the end of the rehabilitation period, and 22 did not expect to be able to emerge from critical status by the end of the rehabilitation period and would remain in critical status past the end of the rehabilitation period (or indefinitely), or were projected to become insolvent.
• Critical and Declining: There were 122 plans covering 1.2 million participants in critical and declining status. All plans in critical and declining status in the 2020 Form 5500 data are eligible to apply for SFA.

In total, 990 plans covering 8.5 million participants did not meet SFA eligibility criteria based on the most recent data. These plans had total underfunding of $564.7 billion (on an RPA '94 basis) or $72.9 billion (on an actuarial basis).

While it is not possible to predict the future, some of these 990 plans may become insolvent. Insolvent plans that are not eligible for SFA are eligible to receive traditional financial assistance through PBGC's multiemployer insurance program. PBGC expects to have sufficient resources from which to provide traditional financial assistance to these plans because it has projected that, due to SFA, its multiemployer insurance program will likely remain solvent for the next 40 years.²¹