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House approves pension rescue bill

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Tax Hot Topics newsletter The House of Representatives approved the Rehabilitation for Multiemployer Pensions Act (H.R. 397) on July 24.

The bill establishes the Pension Rehabilitation Administration (PRA), a new agency housed within the Department of Treasury that will be authorized to grant loans to financially troubled multi-employer pension plans.

To be eligible, the financial status of plan a must be “critical and declining” as defined in Section 432(b)(2) and (6). This generally means that plan is either insolvent or is projected to become insolvent within the applicable statutory timeframe. The PRA loan will provide the funds necessary to satisfy the plan’s obligations to its participants and beneficiaries in “pay status” when the loan is made. Under the terms of the loan, the plan will be required to make interests payments for 29 years with the principal due in year 30. Plans that receive a PRA loan can still receive additional assistance from the Pension Benefit Guaranty Corporation if they can demonstrate that the loan by itself will not allow it to become or stay solvent.

The bill passed on a mostly party-line vote with only 29 Republicans joining all 235 House Democrats in supporting the measure. A companion bill (S. 2254) has been introduced by Senate Democrats, but is likely to run into opposition from Senate Republicans. Many Republicans derided the legislation as irresponsible and a bailout to employers and unions.

The bill is estimated to cost more than $48 billion over the next 10 years with some revenue recouped using the same revenue offsets on a retirement incentives bill that already passed the House. These provisions include increases to failure to file penalties and changes to the “stretch IRA” provision that double the time period from five years to 10 years by which certain beneficiaries of retirement accounts must distribute the income.

Contacts:
Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

Omair Taher
Senior Associate
Washington National Tax Office
T +1 202 861 4143

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