Seyfarth Synopsis: If the Senate Parliamentarian blesses it, the $1.9 trillion American Rescue Plan (a.k.a. the latest COVID-19 relief bill) may include multiemployer pension relief that would provide underfunded multiemployer pension plans with sufficient monies from the Treasury Department to pay for all accrued benefits owed to retirees, without reduction, through the plan year ending in 2051. Notably, any multiemployer pensions plans eligible for this relief would not have to repay those monies.
Embedded in the $1.9 trillion “American Rescue Plan” is yet another attempt at multiemployer pension plan reform, entitled the “Butch Lewis Emergency Pension Plan Relief Act of 2021” (“Butch Lewis”). The Senate Parliamentarian is to decide whether Butch Lewis has the necessary budget impact to remain part of what is to be a budget reconciliation bill that will need only majority approval in the Senate. That decision should come very soon.
Butch Lewis is a continuation of various prior legislative efforts aimed at addressing the multiemployer pension plan crisis, including earlier versions of the Butch Lewis Act of 2019, the Emergency Pension Plan Relief Act of 2020, and other pending pension reform legislation. Gone are attempts to share any economic pain among the stakeholders, or to provide any mechanism for the repayment of financial assistance given to underfunded multiemployer pension plans. Instead, if it remains in the American Rescue Plan, Butch Lewis as drafted will make any underfunded multiemployer plan eligible for “special financial assistance” that is not subject to any financial repayment obligations, provided it meets one of the following criteria:
(A) The multiemployer pension plan is in critical and declining status in any plan year beginning in 2020 through 2022;
(B) The multiemployer pension plan suspended benefits in accordance with the process set forth in the Multiemployer Pension Reform Act of 2014 (“MPRA”);
(C) The multiemployer pension plan is certified by the plan actuary to be in critical status in any plan year beginning in 2020 through 2022, has a “modified funded percentage” (defined as the percentage equal to a fraction, the numerator of which is current value of plan assets and the denominator of which is current liabilities) of less than 40%, and has a ratio of active to inactive participants which is less than 2 to 3; or
(D) The multiemployer pension plan became “insolvent” after December 16, 2014, as defined under Internal Revenue Code Section 418E, and has remained so insolvent and has not been terminated as of the date of enactment of Butch Lewis.
Multiemployer pension plans seeking special financial assistance must apply no later than December 31, 2025, with revised applications submitted no later than December 31, 2026. Butch Lewis allows the PBGC to limit applications during the first 2 years following enactment to certain plans, such as those that are insolvent or are likely to be insolvent within 5 years.
The amount of financial assistance provided to eligible multiemployer pension plans is equal to the amount required to pay all accrued benefits, without reduction, due from the date of payment of the special financial assistance through the last day of the plan year ending in 2051. In short, eligible multiemployer pension plans should have sufficient funds to pay benefits for the next 30 years, provided investment performance over that period is line with projected investment returns and other actuarial assumptions.
Butch Lewis does have provisions to attempt to limit plans from mismanaging the monies they receive. The special financial assistance and any earnings on such assistance must be segregated from other plan assets, and can only be invested in investment-grade bonds or other investments as permitted by the PBGC. The PBGC also is authorized to impose by regulation conditions on plans receiving special financial assistance relating to increases in future accrual rates and any retroactive benefit improvements; allocation of plan assets; reductions in employer contribution rates; diversion of contributions to, and allocation of expenses to, other benefit plans; and withdrawal liability.
Any multiemployer pension plan that receives special financial assistance shall be deemed to be in critical status until the last plan year ending in 2051, and it also must reinstate any previously suspended benefits under the MPRA, and provide payments equal to the amount of benefits previously suspended (either as a lump sum or in equal monthly installments). Multiemployer pension plan accepting special financial assistance under Butch Lewis will not be eligible to apply for a new suspension of benefits under the MPRA.
The funds used to pay for the special financial assistance would come directly from the Treasury Department. The payment to the multiemployer pension plan would be a single, lump-sum payment. There is currently no provision for a tax on participating employers, or any reduction in participating employee benefits. The proposed law does provide, however, for an increase in premium rates for multiemployer plans from the currently indexed annual per participant rate (which is $31 per participant for plan years beginning in 2021) to $52 per participant for plan years beginning after December 31, 2030, with indexing for inflation tied to the Social Security Act’s national wage index.
Any participating employer that withdraws within 15 calendar years from the effective date of when a plan receives special financial assistance will not see any reduction in its withdrawal liability assessment due to the special financial assistance. Withdrawal liability will be calculated without taking into account special financial assistance received until the plan year beginning 15 calendar years after the effective date of the special financial assistance. As currently drafted, Butch Lewis would not otherwise change how withdrawal liability is calculated, including application of the withdrawal liability payment schedule, the 20-year cap on payments, or the mass withdrawal liability rules.
In short, Butch Lewis as currently drafted basically would result in the federal government picking up the tab for certain seriously underfunded multiemployer pension plans for the next 30 years, without imposing any costs directly on such plans or their participating employers, unions, participants or retirees. As such, it could be a huge relief for such underfunded plans and their participating employers and participants if Butch Lewis is passed. Stay tuned.