Pension Fund Update: Financial Assistance Application Set for March Filing

March 1, 2023

Ray Hair  -  AFM International President

As you may recall, after an all-out lobbying effort by the Federation, our player conferences, rank-and-file AFM members, AFM and Employers’ Pension Fund (AFM-EPF) participants, and organized labor, Congress passed the American Rescue Plan Act (ARPA) in early 2021. ARPA provides financial relief to multiemployer defined benefit pension plans facing financial distress. Troubled plans will be supported with enough money to pay benefits for decades into the future (at least through 2051, if projections hold). The AFM-EPF will be applying for assistance in early March this year.

We are all grateful and proud of the grassroots organizing and determination of AFM-EPF participants and AFM members to push for this legislation, which now stands to improve the lives of tens of millions of workers and retirees. This month, I want to take the opportunity to provide some details about the application process and rules that apply once the fund receives assistance.

ARPA is one of the most important pieces of legislation in a generation, adopted in support of pension plans and their participants. The AFM-EPF, and other union pension plans like it, are essential to the dignity and welfare of workers. They are also an integral part of the financial foundation of our communities.

Under ARPA, pension plans are allowed to apply for Special Financial Assistance (SFA) on a priority basis set by the Pension Benefit Guaranty Corporation (PBGC), the federal agency that oversees pension plans and administers the ARPA SFA program. That priority depends on how underfunded a pension fund may be, as well as other factors. For example, plans that were already insolvent or about to become insolvent were allowed to apply first, starting July 2021. Many of those plans have already received assistance.

The AFM-EPF is considered a priority plan because it is such a large plan. The application window for our group just opened this past February. The fund intends to apply before March 11, 2023. The PBGC has 120 days to review the application and expects to pay approved plans their financial assistance in a lump sum within 60 to 90 days of approval. The ARPA payment is not a loan, it is a grant that does not have to be repaid.

Denied or withdrawn applications can be revised and resubmitted. If the PBGC has questions or concerns about any aspect of the fund’s application or assumptions, the AFM-EPF will address them promptly. Revised applications only need to address issues identified by PBGC and can be resubmitted quickly. According to the law, there is no limit on the amount of money available for eligible plans, so any delay should not adversely affect the fund.

Once the AFM-EPF receives financial assistance, it is required to be invested in stocks and bonds, and the law requires plans to keep SFA money separate from other plan assets. One-third of the SFA may be invested in “return seeking assets,” generally, publicly traded stocks, and at least two-thirds must be in investment-grade, fixed income securities, generally bonds. All ongoing benefit payments and expenses can be paid out of the SFA money so that the fund’s other assets can continue to grow from contribution income and investment returns.

Under ARPA rules, plans that receive financial assistance are not permitted to increase benefits in the first 10 years after receiving help, unless the increase is for future accruals and is fully paid for with new contribution increases. After 10 years, a plan may request an exemption from this rule, if it can demonstrate that it will avoid insolvency, even with the benefit improvement.

Also, a plan receiving ARPA SFA money will not be permitted to allow reductions in employer contributions. An employer’s contribution rate cannot be any lower than it was on March 11, 2021, the date that ARPA was signed into law. These restrictions on benefit increases and contribution reductions will expire after 2051. Reductions or increases in contribution rates that took effect July 9, 2021, or later are disregarded in calculating the amount of assistance. (Lower contributions wouldn’t have resulted in the fund receiving more assistance and contribution increases wouldn’t have resulted in the fund receiving less.)

We won’t know exactly how much assistance the AFM-EPF will receive until the application is approved, but our actuaries predict it will be over $1 billion. It is a significant sum and will go a long way toward shoring up the fund. The final funding amount is based on the fund’s financial status at the time of filing. Many other factors, including projections about future benefit payments, expenses, and contributions, are considered. AFM-EPF is doing everything possible to obtain all of the assistance it is entitled.

The ARPA assistance is projected to provide enough funding so that the AFM-EPF is able to pay benefits through 2051 without any reductions to participants’ benefits. The fund will keep participants informed as the application process moves forward.

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