i 

CONTENTS

Page

INTRODUCTION .......................................................................................................................... 1

TITLE I ─ REHABILITATION FOR MULTIEMPLOYER PENSION PLANS ......................... 2

A. Establishment of Pension Rehabilitation Administration to Provide Loans 

to Certain Multiemployer Plans....................................................................................... 2
1 

INTRODUCTION

The House Committee on Ways and Means has scheduled a committee markup on 

July 10, 2019 of H.R. 397, the “Rehabilitation for Multiemployer Pensions Act of 2019.”1 This 

document, prepared by the staff of the Joint Committee on Taxation, provides a description of 

the Chairman’s Amendment in the Nature of a Substitute to H.R. 397.2

 

1

 H.R. 397 was introduced on January 9, 2019. The Chairman’s Amendment in the Nature of a Substitute 

to H.R. 397 makes a number of significant changes to the bill as introduced. This document describes the provisions 

of the Chairman’s Amendment in the Nature of a Substitute, and also includes descriptions of present law. 

2

 This document may be cited as follows: Joint Committee on Taxation, Description of the Chairman’s 

Amendment in the Nature of a Substitute to H.R. 397, the “Rehabilitation for Multiemployer Pensions Act of 2019 

(JCX-37-19), July 9, 2019. This document can also be found on the Joint Committee on Taxation website at 

www.jct.gov. All section references herein are to the Internal Revenue Code of 1986, as amended (the “Code”), 

unless otherwise stated.
2 

TITLE I ─ REHABILITATION FOR MULTIEMPLOYER PENSION PLANS

A. Establishment of Pension Rehabilitation Administration

to Provide Loans to Certain Multiemployer Plans 

Present Law

Multiemployer plans

A multiemployer plan is a plan to which more than one unrelated employer contributes, 

that is established pursuant to one or more collective bargaining agreements, and which meets 

such other requirements as specified by the Secretary of Labor.3

 Multiemployer plans are 

governed by a board of trustees consisting of an equal number of employer and employee 

representatives, referred to as the plan sponsor. In general, the level of contributions to a 

multiemployer plan is specified in the applicable collective bargaining agreements, and the level 

of plan benefits is established by the plan sponsor. 

Like other private defined benefit plans4

, multiemployer defined benefit plans are subject 

to minimum funding requirements under the Code and ERISA.5

 An excise tax may be imposed 

on the employers maintaining the plan if the funding requirements are not met.6 However, the 

excise tax does not apply for a taxable year with respect to a multiemployer plan if, for the plan 

years ending with or within the taxable year, the plan is in critical status under Code section 

432.7

General funding requirements for multiemployer plans

Employer contributions to a defined benefit plan are generally subject to minimum 

funding requirements, the details of which depend on whether the plan is a single-employer plan 

or a multiemployer plan. Unless a funding waiver is obtained, an employer may be subject to a 

two-tier excise tax if the funding requirements are not met. 

In general, the annual deduction limit on employer contributions to a multiemployer 

defined benefit plan for a year is the excess of (1) 140 percent of the plan’s current liability (the 

present value of all benefits earned under the plan), over (2) the value of plan assets. However, 

 3

 Sec. 414(f) and ERISA section 2(37).

4

 Sec. 414(j).

5

 Secs. 412 and 431, and ERISA secs. 302 and 304. Additional rules apply to multiemployer plans that are 

insolvent under section 418E and ERISA section 4245. Certain changes were made to the funding requirements for 

multiemployer plans by the Pension Protection Act of 2006 (“PPA”), Pub. L. No. 109-280 and by the Multiemployer 

Pension Reform Act of 2014 (“MPRA”), Pub. L. No. 113-235, Division O. 

6

 Sec. 4971.

7

 Sec. 4971(g)(1).
3 

the deduction limit is never less than the amount of contributions required under the funding 

rules. If contributions exceed the amount deductible, the employers that contribute to the 

multiemployer plan are generally subject to an excise tax.

General funding requirements apply to all multiemployer plans. Additional funding 

requirements apply to plans in endangered8 or critical status. An employer that withdraws from 

a multiemployer plan is generally liable to the plan for a portion of the plan’s unfunded vested 

benefits, referred to as withdrawal liability. Various provisions limit the amount of an 

employer’s withdrawal liability.

Under the general funding requirements, a multiemployer defined benefit plan maintains 

a funding standard account, to which charges (such as for benefit accruals and negative plan 

experience) and credits (such as for positive plan experience and contributions) are made. The 

minimum required contribution for a plan year is the amount, if any, needed to balance 

accumulated credits and accumulated charges to the funding standard account. If required 

contributions are not made, so the funding standard account has a negative balance, an 

accumulated funding deficiency results.

A multiemployer plan is required to use an acceptable actuarial cost method (referred to 

as the plan’s funding method) to determine the elements included in its funding standard account 

for a year, including normal cost and supplemental cost. Normal cost generally represents the 

cost of future benefits allocated to the year under the plan’s funding method. The supplemental 

cost for a plan year is the cost of future benefits that would not be met by future normal costs, 

future employee contributions, or plan assets. Supplemental costs may be attributable to past 

service liability or to worse than expected plan experience. Supplemental costs are amortized 

(that is, recognized for funding purposes) over a specified number of years (generally 15 years) 

by annual charges to the funding standard account over that period. Factors that result in a 

supplemental loss can alternatively result in a gain that is recognized by annual credits to the 

funding standard account over a 15-year amortization period (in addition to a credit for 

contributions made for the plan year). 

Actuarial assumptions used under the multiemployer plan funding rules must be 

reasonable. The interest rate (which represents the expected return on plan assets over time) and 

mortality assumptions used in funding computations are subject to these general standards; the 

funding rules do not specify the interest rate or mortality tables that must be used. For funding 

purposes, the actuarial value of plan assets may be used, rather than fair market value, subject to 

certain conditions. 

 8

 A multiemployer plan is generally in endangered status if the plan is not in critical status and, as of the 

beginning of the plan year, (1) the plan’s funded percentage for the plan year is less than 80 percent, or (2) the plan 

has an accumulated funding deficiency for the plan year or is projected to have an accumulated funding deficiency 

in any of the six succeeding plan years (taking into account amortization extensions). A plan’s funded percentage is 

the percentage determined by dividing the value of plan assets by the accrued liability of the plan. A plan that meets 

the requirements of both (1) and (2) is treated as in seriously endangered status.
4 

Additional requirements relating to plans in endangered or critical status

In general

Additional funding-related requirements apply to a multiemployer defined benefit 

pension plan that is in endangered or critical status.9 In connection with the endangered and 

critical rules, not later than the 90th day of each plan year, the actuary for any multiemployer 

plan must certify to the Secretary and to the plan sponsor whether or not the plan is in 

endangered or critical status for the plan year. If a plan is certified as being in endangered or 

critical status, notice of endangered or critical status must be provided within 30 days after the 

date of certification to plan participants and beneficiaries, the bargaining parties, the PBGC and 

the Secretary of Labor. Additional notice requirements apply in the case of a plan certified as 

being in critical status. 

Various requirements apply to a plan in endangered or critical status, including adoption 

of and compliance with (1) a funding improvement plan in the case of a multiemployer plan in 

endangered status, and (2) a rehabilitation plan in the case of a multiemployer plan in critical 

status. In addition, restrictions on certain plan amendments, benefit increases, and reductions in 

employer contributions apply during certain periods. 

A multiemployer plan is in critical status for a plan year if, as of the beginning of the plan 

year, it meets any of the following definitions: 

• The funded percentage of the plan10 is less than 65 percent and the sum of (1) the 

market value of plan assets, plus (2) the present value of reasonably anticipated 

employer and employee contributions for the current plan year and each of the six 

succeeding plan years (assuming that the terms of the collective bargaining 

agreements continue in effect) is less than the present value of all benefits projected 

to be payable under the plan during the current plan year and each of the six 

succeeding plan years (plus administrative expenses), 

• (1) The plan has an accumulated funding deficiency for the current plan year, not 

taking into account any amortization period extensions, or (2) the plan is projected to 

have an accumulated funding deficiency for any of the three succeeding plan years 

(four succeeding plan years if the funded percentage of the plan is 65 percent or less), 

not taking into account any amortization period extensions, 

• (1) The plan’s normal cost for the current plan year, plus interest for the current plan 

year on the amount of unfunded benefit liabilities under the plan as of the last day of 

the preceding year, exceeds the present value of the reasonably anticipated employer 

contributions for the current plan year, (2) the present value of vested (that is, 

nonforfeitable) benefits of inactive participants is greater than the present value of 

 9

 Endangered status and critical status are defined in section 432(b)(1) and (2) and ERISA 

section 305(b)(1) and (2).

10 A plan’s multiemployer funded percentage is the percentage determined by dividing the value of plan 

assets by the plan’s accrued liability (that is, generally, the present value of plan benefits).
5 

vested benefits of active participants, and (3) the plan has an accumulated funding 

deficiency for the current plan year, or is projected to have an accumulated funding 

deficiency for any of the four succeeding plan years (not taking into account 

amortization period extensions), or 

• The sum of (1) the market value of plan assets, plus (2) the present value of the 

reasonably anticipated employer contributions for the current plan year and each of 

the four succeeding plan years (assuming that the terms of the collective bargaining 

agreements continue in effect) is less than the present value of all benefits projected 

to be payable under the plan during the current plan year and each of the four 

succeeding plan years (plus administrative expenses).

The first plan year for which the plan is in critical status is referred to as the “initial 

critical year,” which governs the timing of certain requirements and periods. 

In making the determinations and projections applicable in determining and certifying 

endangered or critical status (or neither), the plan actuary must follow certain statutory standards. 

The actuary’s projections generally must be based on reasonable actuarial estimates, 

assumptions, and methods that offer the actuary’s best estimate of anticipated experience under 

the plan.11 In addition, the plan actuary must make projections for the current and succeeding 

plan years of the current value of the assets of the plan and the present value of all liabilities to 

participants and beneficiaries under the plan for the current plan year as of the beginning of the 

year. The projected present value of liabilities as of the beginning of the year must be based on 

the most recent actuarial statement required with respect to the most recently filed annual report 

or the actuarial valuation for the preceding plan year. Any projection of activity in the industry 

or industries covered by the plan, including future covered employment and contribution levels, 

must be based on information provided by the plan sponsor, which shall act reasonably and in 

good faith. 

In the case of a multiemployer plan in critical status, additional required contributions 

(referred to as employer surcharges) apply until the adoption of a collective bargaining 

agreement that is consistent with the rehabilitation plan. In addition, employers are relieved of 

liability for minimum required contributions under the otherwise applicable funding rules (and 

the related excise tax), provided that a rehabilitation plan is adopted and followed.12 Moreover, 

subject to notice requirements, some benefits that would otherwise be protected from elimination 

or reduction may be eliminated or reduced in accordance with the rehabilitation plan.13

 11 Under section 432(j)(8) and ERISA section 305(j)(8), for purposes of the endangered and critical rules, 

various actuarial computations are based upon the unit credit funding method, regardless of whether it is the funding 

method used in applying the general funding requirements to the plan.

12 Sec. 4971(g)(1)(A).

13 The rules for multiemployer plans in critical status include the elimination or reduction of “adjustable 

benefits,” which include some benefits that would otherwise be protected from elimination or reduction under the 

anti-cutback rules under section 411(d)(6) and ERISA section 204(g).
6 

In the case of a failure to meet the requirements applicable to a multiemployer plan in 

endangered or critical status, the plan actuary, plan sponsor, or employers required to contribute 

to the plan may be subject to an excise tax under the Code or a civil penalty under ERISA.14

Anti-cutback exceptions for multiemployer plans

Under the anti-cutback rules, generally applicable to defined benefit plans, a plan 

amendment generally may not reduce accrued benefits or reduce or eliminate an optional form of 

benefit, early retirement benefit, or retirement-type subsidy with respect to accrued benefits. 

Amendments are generally permitted only to reduce future rates of accrual, eliminate optional 

forms of benefits, or eliminate or reduce early retirement benefits or retirement-type subsidies 

only with respect to future accruals; and, in those cases, notice must be provided. 

In the case of a multiemployer defined benefit plan that is in critical status15 or critical 

and declining status,16 or is insolvent,17 subject to notice and other procedural requirements, 

certain plan benefits that would otherwise be protected under the anti-cutback rules are required 

or permitted to be reduced or eliminated. 

In the case of a multiemployer plan in critical status, payments in excess of a single life 

annuity (plus any social security supplement, if applicable) may not be made to a participant or 

beneficiary who begins receiving benefits after notice that the plan is in critical status is provided 

and payments may not be made for the purchase of an irrevocable commitment from an insurer 

to pay benefits. In addition, the plan sponsor may reduce certain benefits (“adjustable benefits”) 

that the plan sponsor deems appropriate, but not for a participant or beneficiary who began to 

receive benefits before receiving notice that the plan is in critical status. Adjustable benefits 

generally include disability benefits not in pay status, early retirement benefits or retirement-type 

subsidies, and most benefit payment options, but not the amount of an accrued benefit payable at 

normal retirement age.

In general, a multiemployer plan is insolvent when its available resources in a plan year 

are not sufficient to pay the plan benefits for that plan year. In that case, benefits must be 

reduced to the level that can be covered by the plan’s assets, but not below the level of benefits 

that are eligible for guarantee under the PBGC’s multiemployer plan program. If plan assets are 

insufficient to pay benefits at the guarantee level, the PBGC provides financial assistance to the 

plan in the form of loans. 

 14 Sec. 4971(g) and ERISA sec. 502(c)(8). In addition, certain failures are treated as a failure to file an 

annual report with respect to the multiemployer plan, subject to a civil penalty under ERISA.

15 Sec. 432(b)(2) and sec. 305(b)(2) of ERISA.

16 Sec. 432(b)(6) and sec. 305(b)(6) of ERISA. 

17 Sec. 418E of ERISA and sec. 4245 of ERISA.
7 

Suspension of benefits in multiemployer plans that are in critical and declining status

A multiemployer plan is in critical and declining status18 if the plan (1) is in critical status 

and (2) is projected to become insolvent19 during the current plan year or any of the 14 

succeeding plan years (19 succeeding plan years if either the ratio of inactive plan participants to 

active plan participants is more than two to one or the plan’s funded percentage is less than 80 

percent). In that case, subject to certain conditions, limitations, and procedural requirements, 

including the appointment of a retiree representative in some cases and approval by the Secretary 

of Treasury, previously earned benefits may be reduced (referred to as benefit suspensions), 

including benefits of some participants and beneficiaries in pay status. 

Benefit suspensions are permitted only if the plan actuary certifies that, taking the benefit 

suspensions into account, the plan is projected to avoid insolvency, and the plan sponsor 

determines that, despite all reasonable measures to avoid insolvency, the plan is projected to 

become insolvent unless benefits are suspended. 

The plan sponsor generally determines the amount of the benefit suspensions and how the 

suspensions apply to plan participants and beneficiaries. However, benefits cannot be reduced 

below 110 percent of the monthly PBGC guarantee level; disability benefits cannot be 

suspended; benefit reductions for a participant or beneficiary between the ages of 75 and 80 are 

limited; benefit reductions are not permitted for a participant or beneficiary age 80 or over; and 

benefit suspensions in the aggregate must be at the level reasonably estimated to achieve, but not 

materially exceed, the level that is necessary to avoid insolvency. 

Partition

On application by the plan sponsor of an eligible multiemployer plan for a partition of the 

plan, the PBGC may order a partition of the plan. Not later than 30 days after submitting an 

application to the PBGC for partition of a plan, the plan sponsor must notify the participants and 

beneficiaries of the application, in the form and manner prescribed by PBGC regulations. 

For purposes of the provision, a multiemployer plan is an eligible multiemployer plan if--

• the plan is in critical and declining status (as described above), 

• the PBGC determines, after consultation with the Participant and Plan Sponsor 

Advocate,20 that the plan sponsor has taken (or is taking concurrently with an 

application for partition) all reasonable measures to avoid insolvency, including 

maximum benefit suspensions permitted in the case of a critical and declining plan, if 

applicable,

 18 Sec. 432(b)(6) and sec. 305(b)(6) of ERISA. 

19 As defined in section 418E.

20 Established under section 4004 of ERISA.
8 

• the PBGC reasonably expects that a partition of the plan will reduce the PBGC’s 

expected long-term loss with respect to the plan and is necessary for the plan to 

remain solvent, 

• the PBGC certifies to Congress that the PBGC’s ability to meet existing financial 

assistance obligations to other plans (including any liabilities associated with 

multiemployer plans that are insolvent or that are projected to become insolvent 

within 10 years) will not be impaired by the partition, and 

• the cost to the PBGC arising from the proposed partition is paid exclusively from the 

fund for basic benefits guaranteed for multiemployer plans.21

The PBGC must make a determination regarding a partition application not later than 270 

days after the application is filed (or, if later, the date the application is completed) in accordance 

with PBGC regulations. Not later than 14 days after a partition order, the PBGC must provide 

notice thereof to the House Committees on Education and the Workforce and on Ways and 

Means and the Senate Committees on Finance and on Health, Education, Labor, and Pensions, as 

well as to any affected participants or beneficiaries.

The plan sponsor and the plan administrator of the eligible multiemployer plan (the 

“original” plan) before the partition are the plan sponsor and plan administrator of the plan 

created by the partition order (the “new” plan). For purposes of determining benefits eligible for 

guarantee by the PBGC, the new plan is a successor plan with respect to the original plan. 

The PBGC’s partition order is to provide for a transfer to the new plan the minimum 

amount of the original plan’s liabilities necessary for the original plan to remain solvent. The 

provision does not provide for the transfer to the new plan of any assets of the original plan. 

It is expected that the liabilities transferred to the new plan will be liabilities attributable 

to benefits of specific participants and beneficiaries (or a specific group or groups of participants 

and beneficiaries) as requested by the plan sponsor of the original plan and approved by the 

PBGC, up to the PBGC guarantee level applicable to each participant or beneficiary. Thus, 

benefits for such participants and beneficiaries up to the guarantee level will be paid by the new 

plan. For each month after the effective date of the partition that such a participant or 

beneficiary is in pay status, the original plan will pay a monthly benefit to the participant or 

beneficiary in the amount by which (1) the monthly benefit that would be paid to the participant 

or beneficiary under the terms of the original plan if the partition had not occurred (taking into 

account any benefit suspensions and any plan amendments after the effective date of the 

partition) exceeds (2) the amount of the participant’s or beneficiary’s benefit up to the PBGC 

guarantee level.

During the 10-year period following the effective date of the partition, the original plan 

must pay the PBGC premiums due for each year with respect to participants whose benefits were 

transferred to the new plan. The original plan must pay an additional amount to the PBGC if it 

provides a benefit improvement (as defined under the rules for plans in critical and declining 

 21 Thus, other Federal funds, including funds from the PBGC single-employer plan program, may not be 

used for this purpose.
9 

status, described above) that takes effect after the effective date of the partition. Specifically, for 

each year during the 10-year period following the effective date of the partition, the original plan 

must pay the PBGC an annual amount equal to the lesser of (1) the total value of the increase in 

benefit payments for the year that is attributable to the benefit improvement, or (2) the total 

benefit payments from the new plan for the year. This payment must be made to the PBGC at 

the time of, and in addition to, any other PBGC premium due from the original plan. 

If an employer withdraws from the original plan within ten years after the date of the 

partition order, the employer’s withdrawal liability will be determined by reference to both the 

original plan and the new plan. If the withdrawal occurs more than ten years after the date of the 

partition order, withdrawal liability will be determined only by reference to the original plan and 

not with respect to the new plan 

Withdrawal liability

An employer that withdraws from a multiemployer plan in a complete or partial 

withdrawal is generally liable to the plan in the amount determined to be the employer’s 

withdrawal liability.22 In general, a “complete withdrawal” means the employer has permanently 

ceased operations under the plan or has permanently ceased to have an obligation to contribute. 

A “partial withdrawal” generally occurs if, on the last day of a plan year, there is a 70-percent 

contribution decline for such plan year or there is a partial cessation of the employer’s 

contribution obligation. 

When an employer withdraws from a multiemployer plan, the plan sponsor is required to 

determine the amount of the employer’s withdrawal liability, notify the employer of the amount 

of the withdrawal liability, and collect the amount of the withdrawal liability from the employer. 

In order to determine an employer’s withdrawal liability, a portion of the plan’s unfunded vested 

benefits is first allocated to the employer, generally in proportion to the employer’s share of plan 

contributions for a previous period.23 The amount of unfunded vested benefits allocable to the 

employer is then subject to various reductions and adjustments. An employer’s withdrawal 

liability is generally payable, with interest, in level annual installments. However, the amount of 

the annual installments is limited, based on the amount of the employer’s previous contributions 

to the plan, and the period over which installments are paid is limited to 20 years. An 

employer’s withdrawal liability is the amount determined after application of these limits. In 

addition, the plan sponsor and the employer may agree to settle an employer’s withdrawal 

liability obligation for a different amount.

If a multiemployer plan is in critical status, payments in excess of a single life annuity 

(plus any social security supplement, if applicable) may not be made and reductions in adjustable 

benefits are permitted. If a plan is in critical and declining status, benefit suspensions are 

permitted, including with respect to participants and beneficiaries in pay status. The elimination 

of any prohibited forms of distribution and reductions in adjustable benefits are disregarded in 

 22 ERISA secs. 4201-4225.

23 Under 29 C.F.R. sec. 4211.2, for this purpose, unfunded vested benefits is the amount by which the 

value of vested benefits under the plan exceeds the value of plan assets. 
10 

determining a plan’s unfunded vested benefits for purposes of determining an employer’s 

withdrawal liability. In addition, suspensions of benefits made under a multiemployer plan in 

critical and declining status are disregarded in determining the plan’s unfunded vested benefits 

for purposes of determining an employer’s withdrawal liability unless the withdrawal occurs 

more than 10 years after the effective date of the benefit suspension.

Multiemployer Plan Program of the Pension Benefit Guaranty Corporation 

The PBGC, a corporation within DOL, provides an insurance program for benefits under 

most defined benefit plans maintained by private employers. The PBGC is administered by a 

director. Its board of directors consists of the Secretary of the Treasury, the Secretary of Labor, 

and the Secretary of Commerce.

The PBGC is financed through the payment of premiums by covered defined benefit 

plans, assets from terminated single-employer defined benefit plans trusteed by the PBGC, and 

investment income on PBGC assets. The PBGC insures pension benefits under separate 

programs for single-employer and multiemployer defined benefit plans.

In the case of a multiemployer plan, flat-rate premiums apply at a rate of $29 per 

participant for 2019. The PBGC provides financial assistance to insolvent multiemployer plans 

in the amount needed to pay benefits at the guarantee limit, which is the sum of 100 percent of 

the first $11 of monthly benefits plus 75 percent of the next $33 of monthly benefits multiplied 

by the participant’s years of service.

Termination of a multiemployer defined benefit pension plan can occur as a result of 

(1) the adoption of a plan amendment providing that participants receive no credit under the plan 

for any purpose for service with any employer after a date specified in the amendment (referred 

to as “freezing accruals”), (2) the adoption of a plan amendment causing the plan to become a 

defined contribution plan, or (3) the withdrawal of every employer from the plan or the cessation 

of the obligation of all employers to contribute to the plan (referred to as “mass withdrawal”).24 

If a terminated multiemployer plan becomes insolvent and plan assets are not sufficient to 

pay benefits at the level guaranteed by the PBGC, the PBGC will provide financial assistance as 

needed to pay benefits at the guarantee level, as described above.25 If a multiemployer plan that 

has not terminated becomes insolvent, similar rules apply, including the provision by the PBGC 

of financial assistance in an amount needed to provide benefits at the guarantee level.

 24 ERISA sec. 4041A. Unlike the termination of a single-employer plan (and except in the case of 

multiemployer plan terminations occurring before 1981), termination of a multiemployer plan does not of itself 

result in the end of the operation of the plan or in the PBGC’s taking over the plan. Instead, the plan sponsor 

continues to administer the plan.

25 ERISA secs. 4261 and 4281.
11 

Description of Proposal 

Establishment of Pension Rehabilitation Administration to provide loans to multiemployer 

plans

Under the proposal, the Pension Rehabilitation Administration (“PRA”) is to be 

established as an agency within the Department of the Treasury. The PRA is authorized to make 

loans to certain multiemployer defined benefit plans.

Multiemployer plan eligibility for loans from the PRA

A multiemployer defined benefit plan which is eligible to receive such a loan is a plan:

• In critical and declining status as of the date of enactment or for which a suspension of 

benefits has been approved as of such date;26 

• In critical status as of the date of enactment, has a modified funded percentage of less 

than 40 percent27, and has a ratio of active to inactive participants which is less than 

two to five; or 

• Insolvent, if it became insolvent after December 16, 2014, and has not been 

terminated;28 

The PRA also establishes appropriate terms for such loans; certain required terms of the 

loan are discussed further below. 

Establishment of the loan program 

Under the proposal, the loan program is to be established not later than September 30, 

2019, with guidance regarding the program to be promulgated by the Director of the PRA (who 

is appointed by the President for a five-year term of office)(“Director”) in consultation with the 

Director of the PBGC, the Secretary and the Secretary of Labor not later than December 31, 

2019. 

 26 Sec. 432(e)(9) and sec. 305(e)(9) of ERISA.

27 As noted above, for determining critical status for purposes of section 432 and section 305 of ERISA, 

assets and liabilities are generally both determined at their actuarial value for purposes of calculating the funded 

percentage, but for purposes of determining which plans are eligible for a loan from the PRA, the modified funded 

percentage means the percentage equal to a fraction the numerator of which is the current value of plan assets as 

defined in ERISA section 3(26) (fair market value if available and otherwise the fair value as determined in good 

faith by a trustee or named fiduciary pursuant to the terms of the plan and in accordance with regulations of the 

Secretary, assuming an orderly liquidation at the time of such determination) and the denominator of which is 

current liabilities (as defined in section 431(c)(6)(D) and section 304(c)(6)(D) of ERISA).

28 Pursuant to section 4041A of ERISA.
12 

Before the loan program has been established, or before guidance has been promulgated, 

a plan may apply for a loan, and the PRA will approve the application and make the loan before 

establishment of the program if necessary to avoid any suspension of participants’ accrued 

benefits. 

The Director29 consults with the Secretary, the Secretary of Labor, and the Director of the 

Pension Benefit Guaranty Corporation (“PBGC”) before making any such loan to a 

multiemployer plan, and shares the application and plan information with such individuals. 

Pension Rehabilitation Trust Fund 

Under the proposal, the Pension Rehabilitation Trust Fund (the “Fund”) is established in 

the Treasury Department to fund the loan program. The Fund consists of the following amounts 

as may be appropriated or credited to the Fund as follows:30 

• Amounts transferred from the general fund of the Treasury by the Secretary to the 

Fund as are necessary to fund the loan program, including from proceeds of the 

Secretary’s issuance of Treasury obligations (under 31 U.S.C. chapter 31); 

• Any amounts received from a plan as payment of interest (including points and other 

similar amounts) or principal on a loan (which are deposited into the Fund by the 

Director); and.

• Any unobligated amounts appropriated to the Department of Treasury transferred by 

the Secretary to the PRA as may be reasonably necessary to pay for administrative 

and operating expenses as described above (which are deposited into the Fund by the 

Director).

Amounts credited to, or deposited in the Fund, remain available until expended for: 

• Making loans to multiemployer defined benefit plans; 

• Payment of principal and interest on Treasury obligations issued by the Secretary; and

• PRA administrative and operating expenses.

 29 The Director may serve after the expiration of a term until a successor is appointed. The Director may 

appoint Deputy Directors, officers and employees (including attorneys) and may contract for financial and 

administrative services (including those related to budget and accounting, financial reporting, personnel, and 

procurement, but only to the extent that appropriations are available for that purpose for any fiscal year) with the 

General Services Administration (or such other Federal agency that the Director determines to be appropriate) paid 

in advance, or by reimbursement from PRA funds in amounts agreed to by the Director and the head of the Federal 

agency providing the services. The Secretary may transfer (for any fiscal year) from unobligated amounts 

appropriated to the Department of Treasury to the PRA as may be reasonably necessary to pay for its administrative 

and operating expenses.

30 Sec. 9512 and sec. 9602(b).
13 

Loan amount and use 

A plan sponsor must apply to the PRA in order to receive a loan under the proposal. Any 

sponsor of a plan for which a suspension of benefits has been approved31 before the date of 

enactment must apply for such a loan.32 

The amount of any loan will generally be, as demonstrated by the plan sponsor on the 

application, the amount needed to purchase annuity contracts or to implement a portfolio (or a 

combination of the two) sufficient to provide benefits of participants and beneficiaries of the plan 

in pay status, and terminated vested benefits, at the time the loan is made. The loan amount may 

differ if the plan is also applying for financial assistance from the PBGC (see below).

Coordination of loan amount where suspension of benefits has been approved 

In the case of a plan with respect to which a suspension of benefits has been approved, 

the suspension of benefits shall not be taken into account in determining the amount of the loan 

under the proposal, but rather, the loan amount shall be the amount sufficient to provide benefits 

of participants and beneficiaries of the plan in pay status and terminated vested benefits at the 

time the loan is made, determined without regard to the suspension, including retroactive 

payment of benefits which would otherwise have been payable during the period of suspension. 

Coordination of loan amount with PBGC financial assistance 

If a plan that is applying for a loan is also applying for financial assistance with the 

PBGC,33 the plan sponsor must submit the loan application and the application for financial 

assistance jointly to the PRA and to the PBGC with the information necessary to determine the 

eligibility for and amount of the loan and the financial assistance.

If such financial assistance is granted, then the amount of the loan may not exceed an 

amount equal to the excess of either (1) or (2) below (depending on which is applicable) over the 

amount of any PBGC financial assistance:

1. the amount required to purchase annuity contracts or to implement a portfolio (or a 

combination of the two) sufficient to provide benefits of participants and beneficiaries 

of the plan in pay status and terminated vested benefits, at the time the loan is made, or 

2. the amount required for plans for which a suspension of benefits has been approved 

which is sufficient to provide benefits of participants and beneficiaries of the plan in 

pay status and terminated vested benefits at the time the loan is made, determined 

 31 Under section 432(e)(9) and section 305(e)(9) of ERISA or under section 418E.

32 But such a plan may use the simplified application.

33 Under section 4261(d) of ERISA.
14 

without regard to the suspension, including retroactive payment of benefits which 

would have otherwise have been payable during the period of the suspension. 

Use of loan amounts 

Under the proposal, the restrictions that apply to purchasing annuity contracts from an 

insurer to a multiemployer plan effective on the date of the notice of certification of a 

multiemployer plan’s critical status34 do not apply to a loan from the PRA. Rather, under the 

proposal, a loan from the PRA may only be used to purchase annuity contracts or to implement a 

portfolio (or a combination of the two) to provide benefits of participants and beneficiaries in 

pay status, and terminated vested benefits, at the time the loan is made, that satisfy the following 

requirements:

The annuity contracts purchased must be issued by an insurance company which is 

licensed to do business under the laws of any State (and which is rated A or better by a nationally 

recognized statistical rating organization), and the purchase of such contracts must meet all 

applicable fiduciary standards under ERISA.35

The portfolio described must be either a: 

• Cash matching or duration matching portfolio consisting of investment grade (as 

rated by a nationally recognized statistical rating organization) fixed income 

investments, including United States dollar-denominated public or private debt 

obligations issued or guaranteed by the United States or a foreign issuer, which are 

tradeable in United States currency and are issued at fixed or zero coupon rates; or 

• Any other portfolio prescribed by the Secretary in regulations which has a similar risk 

profile to the portfolios described above and is equally protective of the interests of 

participants and beneficiaries.

Once implemented, the portfolio is maintained until all liabilities to participants and 

beneficiaries in pay status, and terminated vested participants, at the time of the loan, are 

satisfied. Any investment manager of a portfolio must acknowledge in writing that such person 

is a fiduciary under ERISA with respect to the plan. Participants and beneficiaries covered by a 

portfolio continue to be treated as participants and beneficiaries of the plan, including for 

 34 Sec. 432(f)(2)(A)(ii) and section 305(f)(2)(A)(ii) of ERISA.

35 Under Title I of ERISA, including section 404, a fiduciary must discharge his or her duties with respect 

to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing 

benefits to such participants and their beneficiaries, and defraying reasonable expenses of administering the plan. 

Each fiduciary must undertake these responsibilities with the care, skill, prudence and diligence under the 

circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matter would use in 

the conduct of an enterprise of a like character and with like aims. Fiduciaries must also avoid prohibited 

transactions, such as self-dealing. The Department of Labor has also established guidelines for the selection of an 

annuity provider. See 29 C.F.R. 2550.404a-4. 
15 

purposes of the PBGC plan termination insurance program.36 Such portfolios are subject to 

oversight by the PRA, including a mandatory triennial review of the adequacy of the portfolio to 

provide the benefits described and approval (to be provided within a reasonable period of time) 

of any decision by the plan sponsor to change the investment manager of the portfolio. If the 

oversight determines an inadequacy in the portfolio, the plan sponsor must take remedial action 

to ensure that the inadequacy is cured within two years of such determination. 

Such annuity contracts purchased and portfolios implemented must be used solely to 

provide benefits to these participants and beneficiaries who are either in pay status or are 

terminated vested participants until all such benefits have been paid and these investments shall 

be accounted for separately from any other assets of the plan. In addition, the PBGC Participant 

and Plan Sponsor Advocate37 shall act as the ombudsperson for participants and beneficiaries on 

behalf of whom annuity contracts are purchased or who are covered by a portfolio. 

Loan application 

Under the proposal, the Director (in consultation with the Director of PBGC, the 

Secretary of the Treasury, and the Secretary of Labor) is authorized to issue rules regarding the 

form, content, and process of applications for loans from the PRA, the actuarial standards and 

assumptions to be used in making estimates and projections for purposes of such applications, 

and assumptions regarding interest rates, mortality, and distributions with respect to portfolio 

investments. The Director must provide for a simplified loan application which may be used by 

(1) an insolvent plan which has not been terminated and which is already receiving financial 

assistance from the PBGC at the time of application for the loan and (2) a plan with respect to 

which a suspension of benefits has been approved before the date of the enactment. 

As part of an application for a loan, the plan sponsor will need to: 

• Demonstrate that the loan (in combination with any financial assistance to be 

provided by the PBGC as described below) will (1) enable the plan to avoid 

insolvency for at least the 30-year period of the loan or, in the case of a plan which is 

already insolvent, to emerge from insolvency within and avoid insolvency for the 

remainder of such 30-year period, and (2) provide that the plan is reasonably expected 

to be able to pay benefits and the interest on the loan during such period and to 

accumulate sufficient funds to repay the principal when due; 

• Provide the plan’s most recently filed Form 5500 as of the date of application and any 

other information necessary to determine the loan amount; 

 36 Under Title IV of ERISA. In other words, such participants and beneficiaries continue to maintain their 

rights under that Title including that these plan benefits will continue to be guaranteed under section 4022A of 

ERISA.

37 Established under section 4004 of ERISA.
16 

• Stipulate whether the plan is also applying for financial assistance from the PBGC38

in coordination with the loan to enable the plan to avoid insolvency and to pay 

benefits or is already receiving such financial assistance as a result of a previous 

application; 

• State how the loan proceeds will be invested (whether to purchase annuities or to 

provide for the portfolio described below), the person from whom any annuity 

contracts will be purchased and the investment manager for any such portfolio 

implemented; and

• Include such other information and certifications as the PRA Director requires. 

Evaluation of the loan application 

In evaluating the plan sponsor’s application, the Director will accept the determinations 

and demonstrations in the application unless the Director (in consultation with the Director of the 

PBGC, the Secretary of the Treasury, and the Secretary of Labor), concludes that any such 

determinations or demonstrations in the application (or any underlying assumptions) are 

unreasonable or are inconsistent with any rules issued by the PRA Director. 

The Director will approve or deny any application within 90 days after its submission. 

An application will be deemed to be approved unless, within such 90 day period, the Director 

notifies the plan sponsor of the denial of the application and the reasons for the denial. Any 

approval or denial of an application by the Director will be treated as a final agency action.39

Once the application has been approved, the PRA will promptly make the loan to the 

plan. 

Terms of the loan 

Under the proposal, the terms of the loan shall provide that: 

• The plan shall make payments of interest only on the loan for a period of 29 years 

beginning on the date of the loan (or 19 years in the case of a plan making the special 

election for early repayment described above);

• The final payment of interest and principal will be due in the 30th year after the date 

of the loan (except as provided by the special election for early repayment described 

above); 

• As a condition of the loan, the plan sponsor stipulates that: 

o The plan will not increase benefits, allow any employer participating in the plan 

to reduce its contributions, or accept any collective bargaining agreement which 

provides for reduced contribution rates during the 30-year period of the loan; 

 38 Under section 4261(d) of ERISA.

39 For purposes of section 704 of title 5 of the United States Code.
17 

o However, in the case of a plan for which a suspension of benefits has been 

approved before the loan was made, the plan will reinstate the suspended benefits 

(or will not carry out any suspension which has been approved, but not yet 

implemented;

o The plan sponsor will comply with the reporting requirements set forth below; 

o The plan will continue to pay PBGC premiums;40 and

o The plan and plan administrator will meet such other requirements as the Director 

provides in the loan terms. 

• The terms of the loan will not make reference as to whether the plan is receiving 

financial assistance from the PBGC41 or to any adjustment in the amount of the loan 

due to such financial assistance; 

• The interest rate on the loan, (as determined by the PRA) will be as low as is feasible 

and will:

o Not be lower than the rate of interest on 30-year Treasury securities on the first 

day of the calendar year in which the loan is issued; and

o Will not exceed the greater of (1) a rate 0.2 percent higher than such rate of 

interest on such date, or (2) the rate necessary to collect revenues sufficient to 

administer the program.

Incentive for early repayment

At the time of the application, under the proposal, the plan sponsor may elect to repay the 

loan principal, along with remaining interest, at least as rapidly as equal installments over the 10-

year period beginning with the 21st year after the date of the loan. In the case of a plan making

this election, the interest on the loan is reduced by 0.5 percent. For example, if a loan of 

$10,000,000 has been approved and the plan sponsor makes this election, then beginning in the 

21st year after the date of the loan, the plan sponsor must pay at least $1,000,000 (along with 

interest) in each year of the 10-year period. The plan sponsor could pay off the entire remaining 

amount of the loan in the 25th year as long as the plan sponsor had been making installments of at 

least $1,000,000 (along with interest) in years 21 through 24. 

Repayment of loan and loan default

The PRA shall make every effort to collect repayment of the loans under the proposal.42 

However, if a plan is unable to make any payment on a loan when due, the PRA shall negotiate 

revised terms for repayment (including installment payments over a reasonable period or 

 40 Sec. 4007 of ERISA.

41 Sec. 4261(d) of ERISA.

42 In accordance with 31 U.S.C. section 3711, Collection and compromise.
18 

forgiveness of a portion of the loan principal) with the plan sponsor, but only to the extent 

necessary to avoid insolvency in the subsequent 18 months. 

Coordination with other rules

Coordination with withdrawal liability rules

If any employer participating in a plan at the time the plan receives a loan withdraws 

from the plan before the end of the 30-year period beginning on the date of the loan, under the 

proposal, the withdrawal liability of such employer shall be determined by (1) treating the plan 

as if it were terminating by the withdrawal of every employer from the plan (i.e., mass 

withdrawal)43 and (2) by determining the value of nonforfeitable benefits under the plan at the 

time of the deemed termination by using the interest assumptions prescribed for the termination 

of a single-employer plan.44 In addition, annuity contracts purchased and portfolios 

implemented shall not be taken into account as plan assets45 in determining the withdrawal 

liability of any employer but the amount equal to the greater of (1) the benefits provided under 

such contracts or portfolios to participants and beneficiaries, or (2) the remaining payments due 

on the loan, shall be taken into account as unfunded vested benefits in determining such 

withdrawal liability.

Coordination with funding rules 

In the case of a plan which receives a loan from the PRA, the following shall apply with 

respect to the funding rules under the proposal: 

• Annuity contracts purchased and portfolios implemented, and the benefits provided to 

participants and beneficiaries under such contracts or portfolios, shall not be taken 

into account in determining minimum required contributions;46

• Payments on the interest and principal under the loan, and any benefits owed in 

excess of those provided under such contracts or portfolios, shall be taken into 

account as liabilities; and

 43 The significance of this treatment is that the amount of withdrawal liability will not be limited to 20 

annual payments and the total unfunded vested benefits of the plan shall be fully allocated among all the 

withdrawing employers, see section 4219(c)(1)(D) of ERISA.

44 Sec. 4044 of ERISA, as prescribed in the regulations under section 4281 of ERISA in the case of such a 

mass withdrawal, including section 4281.13.

45 For purposes of the Code, but for purposes of ERISA, the bill provides, “annuity contracts purchased 

and portfolios implemented... shall not be taken into account in determining the withdrawal liability of any 

employer...” 

46 Under section 412 and section 302 of ERISA. 
19 

• If such a portfolio is projected due to unfavorable investment or actuarial experience 

to be unable to fully satisfy the liabilities which it covers, the amount of the liabilities 

projected to be unsatisfied shall be taken into account as liabilities.

Coordination with taxation of unrelated business income 

For purposes of determining unrelated debt-financed income, “acquisition indebtedness” 

does not include indebtedness with respect to a multiemployer plan under a loan made by the 

PRA.47

Reporting requirements

Under the proposal, not later than the 90th day of the first plan year beginning after the 

date of the loan and each of the 29 succeeding plan years, the plan sponsor of a multiemployer 

defined benefit plan receiving a PRA loan must file a report with the Secretary (including the 

appropriate documentation and actuarial certifications from the plan actuary, as required by the 

Secretary) that contains:

1. The funded percentage48 as of the first day of such plan year, and the underlying 

actuarial value of assets (determined with regard, and without regard, to annuity 

contracts purchased and portfolios implemented with proceeds of such loan) and 

liabilities (including any amounts due with respect to such loan) taken into account in 

determining such percentage;

2. The market value of the assets of the plan (determined with regard, and without 

regard, to annuity contracts purchased and portfolios implemented with proceeds of 

such loan) as of the last day of the plan year preceding such plan year; 

3. The total value of all contributions made by employers and employees during the plan 

year preceding such plan year; 

4. The total value of all benefits paid during the plan year preceding such plan year; 

5. Cash flow projections for such plan year and the nine succeeding plan years, and the 

assumptions relied upon in making such projections; 

6. Funding standard account projections for such plan year and the nine succeeding plan 

years, and the assumptions relied upon in making such projections; 

7. The total value of all investment gains or losses during the plan year preceding such 

plan year;

 47 Sec. 514(c)(6).

48 As defined in section 432(j)(2).
20 

8. Any significant reduction in the number of active participants during the plan year 

preceding such plan year, and the reason for such reductions; 

9. A list of employers that withdrew from the plan in the plan year preceding such plan 

year, and the resulting reduction in contributions; 

10. A list of employers that paid withdrawal liability to the plan during the plan year 

preceding such plan year and, for each employer, a total assessment of the withdrawal 

liability paid, the annual payment amount, and the number of years remaining in the 

payment schedule with respect to such withdrawal liability;

11. Any material changes to benefits, accrual rates, or contribution rates during the plan 

year preceding such plan year, and whether such changes relate to the terms of the 

loan; 

12. Details regarding any funding improvement plan or rehabilitation plan and updates to 

such plan; 

13. The number of participants during the plan year preceding such plan year who are 

active participants, the number of participants and beneficiaries in pay status, and the 

number of terminated vested participants and beneficiaries;

14. The amount of any financial assistance received from the PBGC49 to pay benefits 

during the preceding plan year, and the total amount of such financial assistance 

received for all preceding plan years;

15. The information contained on the most recent annual funding notice submitted by the 

plan;50 

16. The information contained on the most recent annual return and actuarial report; and

17. Copies of the plan document and amendments, other retirement benefit or ancillary 

benefit plans relating to the plan and contribution obligations under such plans, a 

breakdown of administrative expenses of the plan, participant census data and 

distribution of benefits, the most recent actuarial valuation report as of that plan year, 

copies of collective bargaining agreements, and financial reports, and such other 

information as the Secretary, in consultation with the Director, may require. 

The report is to be submitted electronically. The Secretary shall share the information 

contained in the report with the Secretary of Labor and the Director of the PBGC.

Each plan sponsor required to file such a report shall, before the expiration of the time 

prescribed for filing the report, also provide a summary (written in a manner so as to be 

 49 Sec. 4261 of ERISA.

50 Sec. 101(f) of ERISA.
21 

understood by the average plan participant) of the information in such report to participants and 

beneficiaries in the plan and to each contributing employer. 

Penalty for failure to file report

If a plan sponsor fails to file a report required for plans receiving a loan from the PRA, a 

penalty of $100 will be imposed for each day during which the failure continues, unless it is 

shown that such failure is due to reasonable cause, but the penalty is not to exceed a total of 

$15,000 on any person for failure to file such report. Under the proposal, the amount imposed is 

not to be paid from the assets of the plan. 

Eligibility for financial assistance from PBGC

Under the proposal, a plan sponsor is eligible to apply to the PBGC for financial 

assistance for a multiemployer defined benefit plan if the plan sponsor is applying for a loan 

from the PRA and is a multiemployer defined benefit plan that is:

• In critical and declining status; or 

• Insolvent, but has not been terminated and is receiving PBGC financial assistance 

(other than assistance being provided in combination with a PRA loan). 

The plan sponsor must apply by jointly submitting such applications to the PRA for the 

loan and the PBGC for the financial assistance. The application for financial assistance shall 

demonstrate, based on projections by the plan actuary, that after the receipt of the anticipated 

loan amount, the plan will still become (or remain) insolvent within the 30-year period beginning 

on the date of the loan. 

Amount of financial assistance 

In the case of a plan that is in critical and declining status, the financial assistance 

provided shall be the amount (determined by the plan actuary and submitted on the application) 

equal to the sum of (1) the percentage of benefits of participants and beneficiaries of the plan in 

pay status at the time of the application, and (2) the percentage of future benefits to which 

participants who have separated from service but are not yet in pay status are entitled, which if 

such percentage were paid by the PBGC in combination with the loan, would allow the plan to 

avoid the projected insolvency and be projected to have increasing assets over any five-year 

period following the repayment of the loan. Such amount shall not exceed the maximum 

guaranteed benefit with respect to all participants and beneficiaries of the plan.51 The maximum 

guaranteed benefit amount is determined by disregarding any loan available from the PRA and 

shall be determined as if the plan were insolvent on the date of the application. The present value 

of the maximum guaranteed benefit amount with respect to such participants and beneficiaries 

may be calculated in the aggregate rather than by reference to the benefit of each such participant 

or beneficiary. In the case of a plan which is insolvent, the financial assistance provided shall be 

the amount (determined by the plan actuary and submitted on the application) which, if such 

 51 Under sections 4022A and 4022B of ERISA.
22 

amount were paid by the PBGC in combination with the loan and any other assistance being 

provided to the plan by the PBGC at the time of the application, would enable the plan to emerge 

from insolvency. 

Conditions and repayment terms of the loan, and financial assistance provided before a 

final determination of the amount of the loan by the PBGC,52 apply to financial assistance under 

the loan program as if it were otherwise provided to the plan by the PBGC except that the terms 

for repayment will not require the financial assistance to be repaid before the date on which the 

loan is repaid in full. 

The PBGC may forego repayment of the financial assistance if necessary to avoid any 

suspension of the accrued benefits of participants. 

There is appropriated to the Director of the PBGC such sums as may be necessary for 

each fiscal year to provide the financial assistance including necessary administrative and 

operating expenses relating to such assistance.

Effective Date

The proposal generally applies to loans made to multiemployer plans after the date of 

enactment.

 52 Sec. 4261(b) and (c) of ERISA.