AUGUST WASHINGTON REPORT
August 10, 2021
Pension Bailout Guidance for Employers
FTC Issues New “Made in the USA” Rules
DOL Releases Federal Contractor Minimum Wage Proposal
DOL Releases Final Rule Rescinding ‘20 FLSA Joint Employer Standard
IBA Applauds Introduction of the Fair Sugar Policy Act
Fiscal Year 2022 Agriculture Spending Bill
Democrats Revive Food Labeling Bill
Upcoming Events & Contact Information
While in years past Congress by now is enjoying the beginning of its August recess, legislators are currently stuck in Washington finalizing the highly anticipated bipartisan infrastructure bill. The Senate is expected to pass the bill, then move to consider Democrats’ $3.5 trillion budget resolution. While there is expected to be enough Republican support to send the infrastructure bill over to the House, it only takes one Democratic senator to slow down the bill.
After the Senate’s vote on the budget resolution, its committees will then hold virtual meetings during the August recess and start reconciling their pieces of the resolution bill. House Speaker Nancy Pelosi (D-CA) insists that the House will not take up the bipartisan infrastructure bill until the Senate passes the sweeping reconciliation bill.
The Independent Bakers Association is keeping its eyes on the contents of the reconciliation bill, which Democrats are attempting to jam in many of President Biden’s “human infrastructure” priorities. Democrats may be able to get these priorities passed through reconciliation because it does not require a filibuster proof majority to pass. However, reconciliation bills are subject to a strict set of rules about what may be included in the budget and what may not. Under the rules of reconciliation, provisions must directly effect spending or revenue to be included. The ultimate decision-maker here is the Senate parliamentarian, who determines whether individual items may be included or must thrown out as “incidental.”
Meanwhile, the western United States is suffering from punishing temperatures this summer, rising higher than they normally would so early in the season. These high temperatures continue a feedback loop of heat, drought, and fire. High temperatures and lack of water have created dangerous conditions for wildfires that have stretched from Arizona to as far as Washington state. Climate researchers believe this year of wildfires could be another record breaking one, only furthering the devastating loop that many Americans in the west are already struggling with. IBA anticipates this will have a huge impact on wheat crops.
Attendees of the Artisan Bakery Expo this month in Las Vegas shouldn’t miss IBA President Nick Pyle’s Seminar discussing federal and state regulatory and legislative issues impacting the baking industry on Wednesday, August 18 at 11:45 am. IBA will be back in Las Vegas on September 28 for the PACK EXPO and its fall meeting. Registration for the fall meeting is now open on ibabaker.com/events.
This month’s Washington Report covers recent Capitol Hill news that may impact your baking business or allied trade. This includes new guidance on pension bailouts, congressional sugar reform efforts, and what’s on the horizon for labeling. Please email email@example.com with any comments, concerns, or questions.
PENSION BAILOUT GUIDANCE FOR EMPLOYERS
Many IBA member companies contribute to multiemployer pension plans (MEPs) on behalf of their unionized employees. A large number of these plans are significantly underfunded, are at risk of insolvency, and can saddle participating employers with potentially millions of dollars of withdrawal liability if they significantly reduce their contribution obligations or exit the plans. Employers contributing to such plans must take into account recent federal actions aiming to bail out these MEPs when making decisions about their continued plan participation.
The American Rescue Plan Act of 2021 (ARPA) created a special financial assistance (SFA) program administered by the Pension Benefit Guaranty Corporation (PBGC) to extend the solvency of certain financially troubled MEPs. The PBGC recently issued an interim final rule (IFR) that provides guidance on MEP eligibility requirements, the information necessary to demonstrate the amount of SFA to be paid by PBGC, an overview of the application process, and restrictions and conditions on MEPs that receive SFA. The IRS also published Notice 2021-38 to provide guidance on the impact of SFA on minimum funding, as well as issues related to the reinstatement of certain suspended benefits by plans that receive SFA.
PBGC estimates that the SFA program is expected to assist plans covering more than three million participants and beneficiaries by forestalling insolvency and ensuring the payment of full plan benefits through 2051, including the reinstatement of suspended monthly benefits from MEPs that are insolvent but not yet terminated, or MEPs that suspended benefits pursuant to The Multiemployer Pension Reform Act of 2014. It is estimated that the SFA program will forestall the insolvency of 100 MEPs that would otherwise become insolvent during the next 15 years.
However, MEPs that receive SFA still have a high probability of becoming insolvent after 2051. PBGC's guidance makes clear that SFA only provides assistance in the amount necessary to ensure that eligible MEPs are able to pay benefits through 2051. It is unclear what will happen to eligible plans after 2051 without further congressional action. Stakeholders will need to consider the future viability of MEPs that receive SFA and the likelihood of a post-2051 insolvency.
Generally speaking, PBGC's IFR provides that employers participating in MEPs that receive SFA will be required to continue the contribution rates in effect on March 11, 2021, and that any employer withdrawal will be determined using mass withdrawal assumptions. Depending on the circumstances, an employer's liability under mass withdrawal assumptions could be exponentially higher than withdrawal liability calculated based on the MEP's current withdrawal liability assumptions.
Therefore, employers that participate in eligible MEPs need to consider whether continued participation is in their best interest given the conditions on SFA and the risk that the MEP could go insolvent after 2051. Due to the risk of a post-2051 insolvency, active participants and the unions that represent them will need to consider whether continued contributions and accruals in a plan facing a near certain future insolvency would be better placed in an alternative retirement vehicle. Such friction could lead to an employer's withdrawal from a MEP that receives SFA, triggering withdrawal liability calculated under mass withdrawal assumptions.
Employers must also take into account additional conditions to receiving SFA. PBGC is also requiring segregation of SFA funds from other plan assets, and investment of these amounts in "investment grade bonds" or other PBGC approved investments. This will add a degree of safety to SFA dollars, but also likely to reduce investment returns. To the extent plans assume greater returns on investment, this will put increased reliance on employer contributions to sustain trust assets.
The net effect of these federal actions on employers remains unclear. The bailout stabilizes the sickest MEPs and eliminates, for the time being, the possibility that hundreds of thousands of pensions would have their benefits cut or eliminated. It also makes more remote the possibility that these plans will trigger a mass withdrawal paid for by contributing employers. However, none of these federal actions remedy the systemic problems that led to the bailout in the first place.
FTC ISSUES NEW "MADE IN THE USA" RULES
The Federal Trade Commission (FTC) finalizes the Made in USA Labeling Rule,which codifies its long-standing enforcement policy requiring that marketers making unqualified Made in USA claims on labels be able to prove that their products are “all or virtually all” made in the United States.
FTC states that the rule only applies to labeling claims. FTC will continue to bring enforcement actions against marketers that make deceptive U.S.-origin claims falling outside the rule under Section 5 of the Federal Trade Commission Act. The rule does not supersede, alter or affect any other federal statute or regulation relating to country-of-origin labels.
The rule states that the term “Made in the United States” means “any unqualified representation, express or implied, that a product or service, or a specified component thereof, is of U.S. origin, including, but not limited to, a representation that such product or service is ‘made,’ ‘manufactured,’ ‘built,’ ‘produced,’ ‘created’ or ‘crafted’ in the United States or in America, or any other unqualified U.S.-origin claim.”
The rule prohibits marketers from making unqualified Made in USA claims on labels unless (1) final assembly or processing of the product occurs in the United States; (2) all significant processing that goes into the product occurs in the United States; and (3) all or virtually all ingredients or components of the product are made and sourced in the United States.
The rule provides for a broad range of remedies by FTC, including the ability to seek redress, damages, penalties and other relief from marketers that make deceptive Made in USA claims on labels. The rule enables FTC for the first time to seek civil penalties of up to $43,280 per violation of the rule. The rule is effective August 13, 2021.
DOL RELEASES FEDERAL CONTRACTOR MINIMUM WAGE PROPOSAL
The U.S. Department of Labor (DOL) published its proposed rule to raise the minimum wage for federal contractors and is now seeking public comments through August 23, 2021. The proposal follows President Biden's Executive Order 14026(Biden's Order) that will require federal contractors to pay a $15 per hour minimum wage and a $10.50 per hour minimum tipped wage to covered workers, beginning on January 30, 2022. This rule also seeks to tie the federal contractor minimum wage to inflation.
Biden's Order builds on Executive Order 13658 "Establishing a Minimum Wage for Contractors," which former President Obama signed in 2014 (Obama's Order), establishing a $10.10 per hour federal contractor minimum wage that increases annually. It also revokes Executive Order 13838 (Trump's Order), which established several exemptions for complying with Obama's Order.
Although DOL's rule is not yet final, much of it is significantly rooted in Biden's Order and the referenced statutes and regulations, so there may be few changes made prior to the final rule, which must be issued by November 24, 2021. Thus, companies that are questioning whether the requirements will apply to them and how to prepare for the final rule have some early guidance and can start making plans to address the new obligations before they take effect in January.
The following provides a brief overview of the proposed rule: what it covers, who it covers, and its exclusions.
First, companies should evaluate whether they have a contract that is covered by Biden's Order. It is not the case that because a company has a contract with the federal government or a prime contractor, all of its workers or projects are covered by the order. In fact, the requirements only apply to the hours covered workers perform "on" or "in connection with" covered contracts.
The proposed rule interprets Biden's Order to cover an agreement if it: (a) meets the definition of a "contract" (or contract-like instrument), a broad definition that includes (among others) lease agreements, cooperative agreements, licenses, and permits; (b) is a "new" contract, which includes renewals, extensions, and other types of options; and (c) falls under one of the four types identified in Biden's Order:
Procurement contracts for construction covered by the Davis-Bacon Act (DBA);
Contracts for services covered by the Service Contract Act (SCA);
Contracts for concessions (regardless of whether covered by SCA); or
Contracts "entered into with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public."
Notably, unlike Obama's Order and the regulations implementing that order, Biden's Order and the proposed rule include extensions, renewals, and other options in the covered contract actions.
Further notable covered contracts include contracts for "seasonal recreational services or seasonal recreational equipment rental for the general public on Federal lands," which were exempt under Trump's Order, and contracts with independent establishments and agencies, which were excluded from Obama's Order.
Second, a company with a covered contract should evaluate to whom they must pay the requisite minimum wage. Biden's Order and the proposed rule require that those workers working "on" or "in connection with" a covered contract whose wages are governed by Fair Labor Standards Act (FLSA), SCA, or DBA must be paid the minimum wage.
The proposed rule explains that a worker performs "on" a contract if they "directly perform the specific services called for by the contract" and explains that a worker performs "in connection with" a contract if their "work activities are necessary to the performance of a contract but are not the specific services called for by the contract."
Exemptions and Exclusions
Third, a company should evaluate whether their contract or workers are excluded or exempted from the minimum wage requirements. Under the proposed rule, the minimum wage requirements would not apply to:
Contracts with Indian Tribes under the Indian Self-Determination and Education Assistance Act
Procurement contracts for construction that are excluded from coverage of the DBA
Contracts for services that are exempted from coverage under the SCA
Employees who are exempt from the minimum wage requirements of the FLSA
Contracts that result from a solicitation issued before January 30, 2022, and that are entered into on or between January 30, 2022, and March 30, 2022 (if subsequently extended or renewed, however, then the regulations would apply).
These include exemptions for very low-dollar-value contracts, which vary based on the type of contract. For example, while the proposed rule's minimum wage requirements apply to subcontractors and their lower-tier subcontractors, subcontractors have no exemptions due to the size or value of the subcontract.
As for workers, the proposed rule excludes those who are entitled to the FLSA minimum wage and are performing "in connection with" a contract for less than 20% of their work hours in a given workweek. This proposed exclusion based on 20% of hours does not apply to any worker performing "on" a covered contract whose wages are governed by the FLSA, SCA, or DBA.
Therefore, in order to apply this exclusion correctly, contractors must accurately distinguish between workers performing "on" a covered contract and those workers performing "in connection with" a covered contract and keep and maintain records segregating non-covered work from the work performed "on" or "in connection with" a covered contract.
DOL RELEASES FINAL RULE RESCINDING '20 FLSA JOINT EMPLOYER STANDARD
The U.S. Department of Labor (DOL) issues its final rule regarding the definition of “joint employer” under the Fair Labor Standards Act (FLSA). The final rule rescinds the business-friendly Trump “joint-employer” rule that took effect in March 2020, “which used a four-part test to determine whether a business is jointly liable with its franchisee or contractor for minimum wage and overtime violations.”
Under the Obama administration, DOL said a business with indirect control over employees could be held jointly liable, a broader standard that classified more companies as joint employers. But the Trump administration withdrew that interpretation in 2017 and issued its own rule in 2020.
Now by withdrawing the Trump-era rule, DOL broadens the scope of who could be potentially liable as a joint employer for wage and hour violations, such as minimum and overtime wage issues. It also leaves employers without the benefit of concrete DOL guidance for conducting joint employment assessments.
When asked how DOL will determine joint employer status moving forward, DOL spokesperson Edwin Nieves said that the department “will continue to follow applicable law and judicial precedent when evaluating joint employment relationships.”
IBA APPLAUDS INTRODUCTION OF THE FAIR SUGAR POLICY ACT
IBA applauds a recent congressional effort to reform the U.S. sugar program, the Fair Sugar Policy Act of 2021. The bill was introduced in House (H.R. 4680) by Representatives Virginia Foxx (R-NC) and Danny Davis, and in the Senate (S. 2466) by Senators Jeanne Shaheen (D-NH) and Pat Toomey (R-PA).
In the House, H.R. 4680 boasts 36 cosponsors, 22 of whom are Republicans and 14 are Democrats. Many cosponsors, such as Rep. Davis and Representative Bobby Rush (D-IL), represent constituencies with large confectionery manufacturers.
In a statement, Rep. Davis described how “current U.S. policy has kept the cost high for our Chicago-land area candy manufacturers and food processors. Our food processors that use sugar as an ingredient in their products pay twice as much for domestic sugar than the rest of the world. Chicago has lost thousands of jobs due to the protection programs which set artificially high prices, and profits, for sugar growers. We need sugar reform so that food companies are not forced to make difficult choices that impact thousands of jobs.”
In the Senate, S. 2466 has 14 cosponsors from both sides of the aisle, but none from Illinois. Sen. Toomey called the current sugar program a “sour deal for American consumers and taxpayers. Sen. Toomey went on, “it is long past time we reform this corporate welfare program that jacks up food prices while threatening thousands of good-paying jobs. I hope my colleagues will join us in supporting this bipartisan bill to rein in this labyrinth of price control mechanisms that only serve to enrich a handful of wealthy sugar producers.”
In both the House and the Senate, the Fair Sugar Policy Act of 2021 stands at introduced. It would:
Lift restrictions on the domestic supply of refined sugar
Reduce taxpayer liability for sugar processor loan forfeitures
Ensure that the impact on consumers, manufacturers and farmers is taken into account when the USDA administers the sugar program
Reduce market distortions caused by sugar import quotas
IBA supports this legislation. The bills bring common-sense reform to the costly and outdated sugar program, which means relief for IBA members across the country who pay inflated prices for raw sugar as a result of the program.
FISCAL YEAR 2022 AGRICULTURE SPENDING BILL
Senate Democrats release $3.5 trillion budget reconciliation package, calling for investments in climate-friendly farming and child nutrition. The fiscal 2022 budget resolution, which the Senate is expected to adopt this week before leaving town for the August recess, comes with recommendations for committees to draft their separate pieces of the final reconciliation bill. The Agriculture Committee would get $135 billion to spend over the next decade.
The panel would be directed to focus on several issues related to climate change, including farmland forestry conservation, reducing carbon emissions and preventing wildfires. The instructions also call for boosting agricultural climate research and putting money behind the Civilian Climate Corps — a Biden administration proposal to employ young people to help combat climate change.
The overall legislation, if passed, would put the U.S. on track to cut carbon emissions in half and reach 80 percent clean energy by 2030, according to a summary of the proposed reconciliation instructions published by Senate Democratic leaders.
The budget plan would also direct the Agriculture Committee to draft provisions related to rural development, clean energy, child nutrition and debt relief. Progressive lawmakers and school nutrition groups have pushed for the reconciliation package to permanently make school meals free for all students, regardless of their household income. That policy has effectively been in place temporarily since last year in response to the coronavirus pandemic.
The proposed reconciliation instructions published on Monday are also “not final and not exclusive,” according to the documents. That means other policy areas are fair game for the Agriculture Committee to consider.
DEMOCRATS REVIVE FOOD LABELING BILL
Senators Richard Blumenthal (D-CT), Ed Markey (D-MA), Sheldon Whitehouse (D-RI) and Representatives Frank Pallone (D-NJ) and Rosa DeLauro (D-CT) reintroduced the Food Labeling Modernization Act that would establish new front-of-package nutrition labeling standards for packaged foods with the aim of helping consumers make healthier choices.
Requiring front-of-package food labeling has long been a goal for some Democrats, who believe the federal government hasn’t done enough to create guardrails around marketing and health claims on food packaging. The bill would also crack down on marketing terms like healthy, natural or whole grain.
A prior iteration of the bill has been introduced in previous sessions, but this version would require nutrition facts, ingredients and allergen information to be posted online, as well, for shoppers who don’t make their selections in-store. The bill would also target “toddler milks,” sweetened beverages the Food and Drug Administration (FDA) has advised should not be labeled as “formula.”
The FDA doesn’t currently have front-of-pack labeling on its official to-do list, otherwise known as the unified agenda. But advocates would love to see the agency get started during the Biden administration, and House Democrats have asked FDA to explore the issue in their latest appropriations bill. What is on the agency’s list of priorities: Updating its definition of “healthy.”
Artisan Bakery Expo
August 17-19, 2021
Las Vegas Convention Center
2021 Prop 65 Virtual Conference
Monday, September 27, 2021
Register at prop65clearinghouse.com
IBA Fall Meeting
Tuesday, September 28, 2021
At the 2021 PACK EXPO
Las Vegas Convention Center
Register at ibabaker.com/events
Independent Bakers Association
316 F Street NE, Ste 206
Washington, DC 20002
Nicholas Pyle, President: firstname.lastname@example.org
Alexis Fobes, Member Accounts: email@example.com
Elizabeth Velander, General Counsel: firstname.lastname@example.org
Kayla Lunde-Kobilinsky, Communications: email@example.com