December 10, 2014
- Congress to Vote on $1.1 Trillion Continuing Resolution and Omnibus Bill Including Pension Provisions
Congress to Vote on $1.1 Trillion Continuing Resolution and Omnibus Bill Including Pension Provisions
On December 9, U.S. House of Representatives Republican leadership unveiled a $1.1 trillion spending package, the Consolidated and Further Continuing Appropriations Act (H.R. 83). A combination of a Continuing Resolution (CR) and an omnibus spending bill, the so-called “cromnibus” will fund the government through the end of fiscal year 2015.
The bill includes several provisions that affect employee benefit plans, including:
PBGC Enforcement of Section 4062(e) “Shutdown” Rules: H.R. 83 includes a provision to address the problems that have arisen from aggressive PBGC enforcement of Section 4062(e) of ERISA.
Under Section 4062(e), if an employer with a pension plan shuts down operations at a facility – and, as a result of that shutdown, more than 20 percent of the workers who were plan participants are separated from employment – the employer is required to provide the Pension Benefit Guaranty Corporation (PBGC) with short-term financial guarantees in the form of a bond or escrow amount based on the plan's unfunded termination liability. Aggressive PBGC enforcement of this provision has given rise to significant compliance challenges and large unexpected liabilities for many companies that engage in normal business transactions, although in July the agency announced a moratorium on enforcement through the end of 2014.
On September 16, the Senate approved S. 2511, a bill to address the problem by ensuring that there is no 4062(e) event unless there is a substantial shutdown of operations at a facility relative to the size of the entire employer, ensuring (subject to certain exceptions) that there is no 4062(e) event unless employees lose their jobs, as opposed to going to work for another employer and significantly reducing the scope of an employer’s liability if there is a 4062(e) event.
Normally, the Senate measure would have proceeded to the full House for consideration. However, House leaders identified a procedural problem with the Senate bill, noting that under the Constitution tax legislation must originate in the House rather than the Senate. The measure is now included in H.R. 83.
Multiemployer Pensions: A series of provisions added to the package by House Education and Workforce Committee Chairman John Kline (R-MN) and Ranking Democrat George Miller (D-CA) would permanently address the funding crisis threatening the multiemployer pension plan system.
As we reported in a November 17 Benefits Byte story, $42.4 billion of the Pension Benefit Guaranty Corporation’s (PBGC) $61.7 billion deficit is attributable to shortfalls in the multiemployer system. The agency’s annual report notes that “absent legislative changes, the multiemployer program faces a greater than 50 percent chance of insolvency by 2022; that likelihood reaches 90 percent by 2025.” As has been noted by the Government Accountability Office and in congressional hearings, the multiemployer pension funding provisions of the Pension Protection Act of 2006 (PPA) are scheduled to expire after 2014 and a substantial minority of multiemployer plans are reportedly in so-called "critical" condition. The House recently passed a one-year extension of the multiemployer funding rules as part of the Tax Increase Prevention Act (H.R. 5771).
Based largely on the Solutions Not Bailouts proposal drafted by the National Coordinating Committee for Multiemployer Plans (NCCMP), the omnibus measure will allow trustees in financially distressed multiemployer plans to intervene and make changes to vested benefits to prevent the plans from becoming insolvent. Under current law, cuts to vested benefits are prohibited under Section 411(d)(6) of ERISA and the Internal Revenue Code. Retirees 75 and older will be exempted from the cuts. The amendment will also increase multiemployer plan premiums to the PBGC from $13 to $26 per participant.
Normal Retirement Age: The provision establishes a special rule for determining normal retirement age for certain existing defined benefit plans.
The provision allows for plan sponsors of certain existing defined benefit plans to use “years of service,” specifically 30 years of service, for the eligibility formula for their co-op employees to receive their distribution from their plans. The provision is based on H.R. 5792, introduced by Representative Ron Kind (D-WI) and co-sponsored by Reps. Richard Neal (D-MA), Jim Gerlach (R-PA) and Mike Kelly (R-PA).
The House is expected to vote on the “cromnibus” measure on December 11, with the Senate to follow as soon as December 12. As current government funding expires on December 11, the House will likely pass a short-term CR to give the Senate time to vote on the bill without triggering a government shutdown.
For more information, contact Diann Howland, vice president, legislative affairs, at (202) 289-6700.