The so-called Butch Lewis Act to address funding problems facing multiemployer pension plans continues to work its way through the legislative labyrinth, with a second House committee approving the legislation in recent weeks.
In what at times was a hotly debated markup session, on July 10 the House Ways & Means Committee approved by a party-line vote an amended version of the Rehabilitation for Multiemployer Pensions Act of 2019 (H.R. 397).
The House Education & Labor Committee approved a similar version of H.R. 397 on June 11, addressing changes that fall within its jurisdiction. The House Appropriations Committee also shares jurisdiction over the legislation, but it is not clear when the committee will act. The various changes to H.R. 397 will have to be reconciled in the House Rules Committee prior to the legislation moving to the full House of Representatives for consideration.
The Butch Lewis Act – named in honor of a deceased beneficiary of the Central States Pension Plan – would allow certain multiemployer plans to borrow for up to 30 years funds needed to remain solvent. The money for the loans and the cost of running the program would come from the sale of Treasury-issued bonds to financial institutions. The Treasury Department would sell the bonds in the open market to large investors, such as financial firms – and then lend the money from the sale of the bonds to the financially troubled plans.
The sponsors of the legislation note that there currently are about 1,400 multiemployer plans covering nearly 10 million people across the country, but about 1.3 million of them are in plans that are quickly running out of money.
“This is not just a statistic. These are American workers who planned for their retirement and now after working for 30-plus years, they are facing financial uncertainty at a time when they are often unable to return to the workforce,” said House Ways & Means Committee Chairman Rep. Richard Neal (D-MA) in his opening statement.
The committee’s ranking Republican, Rep. Kevin Brady (TX), stated: “Forcing hand-picked plans to accept crushing balloon payment loans they can never hope to repay – while putting off necessary reforms to make them solvent – hurts workers, businesses, and innocent taxpayers who did nothing to create these failed plans.” Brady further noted that, while the bill is well intended, “it could make it worse for workers down the road.”
The legislation would establish the Pension Rehabilitation Administration (PRA), a new agency within the Department of the Treasury, that would be authorized to make loans to certain multiemployer plans. Under the Ways & Means bill, multiemployer plans eligible to receive such a loan include those:
- in critical and declining status as of the date of enactment or for which a suspension of benefits has been approved as of such date;
- in critical status as of the date of enactment, has a modified funded percentage of less than 40% and has a ratio of active to inactive participants which is less than 2-to-5; and
- that became insolvent after Dec. 16, 2014, and have not been terminated.
The amount of any loan would generally be the amount needed to purchase annuity contracts or to implement a portfolio (or a combination of the two) sufficient to provide benefits to participants and beneficiaries of the plan in pay status and terminated vested benefits at the time the loan is made.
The bill also specifies that annuity contracts purchased must be issued by an insurance company licensed to do business under the corresponding state laws and is top rated by a nationally recognized statistical rating organization. The purchase of such contracts must also meet all applicable fiduciary standards under ERISA. The resulting portfolio must be either:
- a cash matching or duration matching portfolio consisting of investment grade fixed income investments; or
- any other portfolio permitted by the Treasury Secretary in regulations which has a similar risk profile and is equally protective of the interests of participants and beneficiaries.
Such portfolios would be subject to oversight by the PRA, including a mandatory triennial review of the adequacy of the portfolio, as well as approval of any decision by the plan sponsor to change the investment manager of the portfolio.
The legislation also permits renegotiation of loan defaults and allows for revised terms for imminent insolvency. A plan could also apply for PBGC financial assistance in conjunction with a PRA loan, but only if that plan can demonstrate that a PRA loan alone will not allow the plan to maintain solvency or become solvent.
The loan terms generally would require the plan to make interest payments for 29 years with final interest and principal repayment due in year 30. The bill also includes an incentive for early repayment.
In the previous session of Congress, Senate Republicans and Democrats attempted to reach an agreement to address the multi-employer plan crisis, but the lawmakers were unable to agree before Congress adjourned.