American Rescue Plan Act Provides Funding Relief for Defined Benefit Plans

Preserving resources to use for core operations and employee costs has been one of the biggest concerns for organizations during the pandemic. However, severely declining interest rates have caused pension liabilities and contribution requirements to sky rocket. Defined benefit plan sponsors can look at new funding options as a result of the American Rescue Plan Act of 2021 (ARPA-21) signed into law by President Biden on March 11, 2021. ARPA-21 attempts to soften these impacts to defined benefit plans by temporarily raising the interest rates for plan funding requirements and spreading the payments for liabilities over a longer period of time.

Single Employer Pension Plans

The bill provides funding relief for Single Employer Pension Plans in the form of Interest Rate Stabilization and updated Shortfall Amortizations. The relief will increase funding percentages and has the potential to remove existing benefit restrictions and increase credit balances. This relief does not impact termination costs or financial statement liabilities.

The Interest Rate Stabilization portion of the ARPA-21 is effective for plan years beginning in 2020, but could be deferred to plan years beginning in 2021 or 2022 for all minimum funding purposes or for benefit restriction determination purposes only. The Shortfall Amortization portion is effective for plan years beginning in 2022, with the option to elect this retroactively for plan years beginning in 2019, 2020, or 2021.

Interest Rate Stabilization

The funding relief provided by ARPA-21 extends the prior interest rate stabilization phase-outs through 2030 and applies a 5% floor on the 25-year yield curve rate averages. As a result, ARPA-21 will produce higher discount rates for minimum funding purposes and Adjusted Funding Target Attainment Percentage (AFTAP) calculations, which will:

  • Lower pension liabilities for the 2020-2030 plan years for benefit restriction purposes
  • Lower the cost of benefit accruals for plans that are still open; and
  • Lower minimum funding requirements for the 2020-2030 plan years.

Shortfall Amortizations

Effective for the 2022 plan year, with the option to elect retroactively for 2019, 2020, and 2021, the ARPA-21:

  • Reduces the existing funding shortfall amortizations to $0;
  • Establishes a new shortfall base (liabilities minus assets) as of the valuation date; and
  • Extends the amortization period from 7 years to 15 years.

Multiemployer Plans

ARPA-21 provides needed relief to the multiemployer pension system through an actual influx of cash to the most troubled plans. This Special Financial Assistance attempts to allow plans that were projected to become insolvent to remain financially viable until 2051. In addition to this assistance, the bill provides funding relief to multiemployer plans in the form of zone status elections, funding improvement extensions and temporary funding relief. The bill also implements Pension Benefit Guaranty Corporation (PBGC) premium increases. While this legislation contains provisions multiemployer plans of all funded statuses should review, the most notable provisions apply to financially troubled plans.

Special Financial Assistance

ARPA-21 allows eligible multiemployer plans to receive special financial assistance equal to the amount required to pay all benefits due through the last day of the plan year ending in 2051. The assistance is provided in the form of a lump sum and does not need to be repaid. In order to be eligible, a plan must meet one of the following criteria:

  • Critical or Declining status in any plan year beginning in 2020 through 2022
  • Multiemployer Pension Reform Act of 2014 (MPRA) Suspension of Benefits approved as of March 11, 2021
  • Certified in Critical Status, have a Modified Funded Percentage less than 40%, and have an active to inactive participant ratio less than 2 to 3
  • Became insolvent after December 16, 2014, remain insolvent, but not terminated as of March 11, 2021.

Calculation of the special financial assistance includes the following guidelines:

  • No reductions in participant or beneficiary accrued benefits as of March 11, 2021 (unless there was a prior reduction to adjustable benefits before the plan’s application);
  • Any benefits suspended under an approved MPRA application or in connection with insolvency must be reinstated and repaid; and
  • Benefits are not capped by the PBGC guarantee.

Applications for special financial assistance will be reviewed by the PBGC (in some cases in coordination with the Treasury) and will be deemed approved unless denied within 120 days, in which case the plan may submit a revised application with a submission deadline of December 31, 2026.

Once received, the special financial assistance may only be used to pay benefits and expenses, must be invested in investments permitted by PBGC, and must be separated along with any earnings from plan assets. ARPA’s financial assistance is funded through transfers from the Treasury’s general fund to PBGC, with no transfers or financial assistance payments allowed after September 30, 2030.

Zone Status Elections and Rehabilitation / Funding Improvement Plans Extensions

Multiemployer plans may temporarily delay their Zone Status designation and elect the same Zone Status for the first plan year beginning during March 1, 2020 and ending on February 28, 2021 (or for the next succeeding plan year) as the same status for the plan year prior to the designated plan year. Plans electing this delay are not required to update their Funding Improvement or Rehabilitation Plan until the plan year following the designated plan year.

In addition, there are special considerations for plans that would be in Critical Status absent the delay. Plans in Endangered or Critical Status for a plan year beginning in 2020 or 2021 may elect to extend their Funding Improvement or Rehabilitation Plan by 5 years. Plans electing these provisions are subject to specific election and participant notification requirements.

Funding Elections

Multiemployer plans may elect to smooth investment losses over a period of up to 10 years in one or both of the two plan years ending after February 29, 2020, when determining actuarial value of assets. Plans may also elect to amortize COVID-19 experience losses over a period generally up to 29 years in one or both of the two plan years ending after February 29, 2020. Those experience losses may include:

  • Investment losses; or
  • Pandemic-related losses, including losses related to contribution reductions, employment reductions, and deviations from anticipated employment rates.

Plans may elect to widen the asset corridor used in calculating the actuarial value of assets from 80% to 130%. Plans making these elections must pass a solvency test, are subject to plan amendment restrictions, must follow specific election and participant notification requirements, and are not eligible to elect special financial assistance.

PBGC Premium Increases

The 2021 PBGC premium is $31 per participant. This premium is adjusted annually for inflation and we expect it could reasonably increase to $44 by 2031. ARPA increases the PBGC premium to $52 for plan years beginning after December 31, 2030, with inflation adjustments continuing annually.

Learn More about the American Rescue Plan Act

In addition to relief for pension plans, the American Rescue Act contains many provisions relevant to employers and plan administrators, including preserving health benefits for workers, dependent care assistance plan enhancements, credits for paid sick and family leave, and more. Read our full At Issue on the American Rescue Plan Act here.

CBIZ Retirement Plan Services Can Help

If you are interested in taking advantage of pension plan relief provided by the American Rescue Plan Act, the actuaries with CBIZ Retirement Plan Services can guide you through the decision process and explain the opportunities afforded by ARPA-21. We would be happy to help you determine the impact of this new legislation on your plan, including, but not limited to, recalculating prior years’ valuation results, increases in credit balances, PBGC Premiums, revisiting current standard or distress termination strategies, etc. Please feel free to contact a member of our team with any questions.


CBIZ Retirement Plan Services is a trade name under which certain subsidiaries of CBIZ, Inc. (NYSE Listed: CBZ) market investment advisory, investment management, third party administration, actuarial and other retirement plan services. Investment advisory and investment management services offered through CBIZ Investment Advisory Services, LLC, Registered Investment Adviser. Investments, investment advisory and investment management services may also be offered through CBIZ Financial Solutions, Inc., Member FINRA, SIPC and Registered Investment Adviser, dba CBIZ Retirement Plan Advisory Services. Third party administration, actuarial and other consulting services offered through CBIZ Benefits & Insurance Services, Inc.

American Rescue Plan Act Provides Funding Relief for Defined Benefit Planshttps://www.cbiz.com/Portals/0/Images/Government-Valuation636970698886769081.jpg?ver=2019-06-25-103128-707https://www.cbiz.com/Portals/0/Images/Government-Valuation636970698886769081.jpg?ver=2019-06-25-103128-707Defined benefit plan sponsors can look at new funding options as a result of the American Rescue Plan Act of 2021 (ARPA-21) signed into law by President Biden on March 11, 2021.2021-03-18T16:00:00-05:00Defined benefit plan sponsors can look at new funding options as a result of the American Rescue Plan Act of 2021 (ARPA-21) signed into law by President Biden on March 11, 2021.Regulatory, Compliance, & LegislativeRetirement Plan ServicesAccelerated RecoveryCOVID-19Yes