I – Overview of the Butch Lewis Emergency Pension Plan Relief Act

The much-heralded Butch Lewis Emergency Pension Plan Relief Act of 2021 (the “Butch Lewis Act of 2021”) is closer to becoming a reality as part of the COVID-19 relief bill, which is set for a vote in the House of Representatives on February 26, 2021. The Butch Lewis Act of 2021 strives to address the plight of multiemployer and single-employer pension plans in the wake of COVID-19. Here we discuss only the multiemployer pension plans.  Representative Richard Neal (D-MA), chairman of the Ways and Means Committee of the House, proposed this bill. The bill has been fast-tracked.

Specifically, the proposed legislation offers several forms of relief to struggling multiemployer plans, including:

  1. Retention of a plan’s zone status at the beginning of the 2019 plan year for the plan years beginning in 2020 or 2021 (meaning that plans in “endangered or critical status” could delay updating the plan or schedules until the plan year beginning March 1, 2021);
  2. Extension of rehabilitation period by five years for plans in “endangered or critical status” for plan years beginning in 2020 or 2021 (effective for plan years beginning after December 31, 2019);
  3. Permission for plans to use a thirty-year amortization base to spread out losses (effective for plan years ending on or after February 29, 2020); and
  4. Freeze of the cost of living adjustment.

No provisions provide any monies to pension funds.

Rather, under the Special Financial Assistance Program for Financially Troubled Multiemployer Pension Plans, a portion of the Butch Lewis Act of 2021, monies will be provided to aid approximately 10 million Americans that participate in multiemployer pension plans, 1.3 million of whom are stuck in quickly sinking plans.

  1. What does this Program do? Through this program, the Pension Benefit Guaranty Corporation (the “PBGC”) would send payments directly to eligible multiemployer pension plans. It also would raise the PBGC multiemployer plans premium rate to $52 per participant as of 2031.
  2. Which multiemployer pension plans are eligible? These plans are eligible:
    • Plans in “critical and declining status” (within the meaning of section 305(b)(6) of ERISA) in any plan year beginning in 2020 through 2022.
    • Plans with a modified funded percentage of less than 40% with more retirees than active workers (less than 2:3 ratio) in any plan year from 2020 through 2022. Under the Act, modified funded percentage means “the percentage equal to a fraction the numerator of which is current value of plan assets and the denominator of which is current liabilities.”.
    • Plans that became insolvent (under section 418E of the Internal Revenue Code of 1986) after December 16, 2014, and have remained insolvent.

Eligible funds must apply to the Program no later than December 31, 2025.

  1. How much will eligible plans be receiving? After a plan’s application is approved, the PBGC will make a single, lump-sum payment in the amount required for the plan “to pay all benefits due during the period beginning on the date of enactment and ending on the last day of the plan year ending in 2051 with generally no reduction in a participant’s or beneficiary’s accrued benefit.” Essentially, the PBGC would be paying all pension benefits owed to retirees. There is no cap on this payment, and the funding predictions will be performed on a “deterministic basis.”
  2. Do the payments come with any obligations? Plans would have to reinstate benefits that were suspended and invest the monies in investment-grade bonds or other investments allowed by the PBGC.
  3. Does this Program affect employers? Not immediately. An employer’s withdrawal liability will still be calculated without consideration of the payment received under the Program until the plan year beginning 15 calendar years after the effective date of the special financial assistance. Eligible plans would have to provide employers with an estimate of the employer’s share of the plan’s unfunded vested benefits (accounting for any payment under the Program) as of the end of each plan year.

II – Practical Application of the Butch Lewis Emergency Pension Plan Relief Act

The Butch Lewis Act of 2021’s lofty goals seem promising, but employers and pension beneficiaries should be wondering how this Act will operate. Questions regarding how many pension plans will require relief, and practical considerations about how the PBGC will secure the funding to relieve the eligible plans, remain up in the air.

Interestingly, there may be fewer eligible funds than predicted. Milliman’s December 2020 Multiemployer Pension Funding Study concluded that the aggregate funded percentage for all multiemployer pension plans as of December 31, 2020, was 88%, the highest percentage it has been since before the 2008 market crash. However, this study relies predominately on data from Form 5500s from the 2018 and 2019 plan years. Per Milliman, the impact of COVID-19 is thus only reflected on investment returns, and not plan participation or contribution levels.

But the study provides valuable insight into the potential number of pension plans eligible for the Special Financial Assistance Program. Only 124 pension plans were designated as “critical and declining” as of December 31, 2020. These plans are projected to remain underfunded through 2025. From these figures, at least 124 pension plans will be eligible for the Special Financial Assistance Program.

The PBGC’s 2020 Annual Report reflects the looming insolvency of its Multiemployer Program by 2027. While federal funding from the Bipartisan American Miners Act of 2019 to the United Mine Workers of American 1974 Pension Plan staved off PBGC’s insolvency for an extra year, the reality remains dire. When the Multiemployer Program becomes insolvent, the PBC can no longer provide financial assistance to pay the current level of guaranteed benefits in insolvent plans.

This projected insolvency directly conflicts with the goals of the Butch Lewis Act of 2021, which would cause the PBGC to pay essentially all pension benefits owed to retirees from the date of the Act’s enactment to the last day of the plan year ending in 2051.

If the PBGC Multiemployer Program is on the brink of insolvency, how can it pay such hefty lump-sum payments to roughly 124 pension plans? The text of the Act does little to answer this question. The text of the Butch Lewis Act of 2021 provides that “an eighth fund shall be established for special financial assistance to multiemployer pension plans,” and that funds will be appropriated from the general fund to provide for the costs of providing financial assistance. And this eighth fund will be “credited with amounts from time to time as the Secretary of Treasury, in conjunction with the Director of the PBGC, determines appropriate, from the general fund of the Treasury.” Thus, the practical application of the Butch Lewis Act of 2021 remains unclear.

Please contact a team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

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Photo of Paul A. Friedman Paul A. Friedman

Paul A. Friedman is a principal in the White Plains, New York, office of Jackson Lewis, P.C. His legal practice is focused on ERISA litigation, labor and Multiemployer Pension Plan Amendments Act (MPPAA) arbitrations and is well grounded in his earlier experience as…

Paul A. Friedman is a principal in the White Plains, New York, office of Jackson Lewis, P.C. His legal practice is focused on ERISA litigation, labor and Multiemployer Pension Plan Amendments Act (MPPAA) arbitrations and is well grounded in his earlier experience as outside counsel to numerous union pension funds. During years of litigating cutting-edge ERISA issues before the U.S. Department of Labor, U.S. district courts, bankruptcy courts and courts of appeal on behalf of employers, plan sponsors and ERISA plan fiduciaries, Paul sometimes finds his own prior landmark decisions cited to him.

For Paul, MPPAA has all the excitement of a trial – it is an intricate and counter-intuitive statute. He has first chair experience in more than 40 jury trials and has handled hundreds of arbitrations and bench trials on all aspects of ERISA. ERISA knows no organizational bounds and so Paul has defended cases for clients representing many industry sectors, including life sciences, financial services, energy, hospitality, and construction.

Paul has served as litigation counsel for numerous multi-employer and single-employer employee benefit plans in ERISA matters, where he:

  • Devotes his practice mainly to the defense of employers, plan sponsors, fiduciaries, and financial institutions against claims brought under ERISA by benefit funds, plan beneficiaries, and the U.S. Department of Labor. He handles issues related to breach of fiduciary duties, excessive plan expenses, benefit entitlement issues retiree health benefits, and functional fiduciary liability
  • Successfully represents companies as plan sponsors against claims of participants and qualified beneficiaries for violations of COBRA
  • Defends employers that have been assessed withdrawal liability under MPPAA or have experienced increased liability due to the passage of the Pension Protection Act of 2006
  • Performs employee benefits due diligence for buyers or sellers in mergers and acquisitions transactions, filling a knowledge gap between labor and financial counsel, ensuring that buyers and sellers price-in or mitigate against ERISA violations and potentially millions of dollars in liabilities
  • Conducts comprehensive strategic reviews of clients’ current operations to avoid or mitigate against exposure to ERISA enforcement and risk of civil and criminal charges brought against company executives, principals, and trustees

In the last decade, he has developed a business model for use by businesses across a broad spectrum of ERISA issues from the beginning of the ownership of these companies to their sale. He also provides benefits guidance to Mergers and Acquisitions counsel in complex transactions.

Outside of work, Paul is an ardent Civil War and World War I buff. He expressly enjoys traveling to Europe and touring World War I battlefields.