The US Senate on March 6 passed the Butch Lewis Emergency Pension Plan Relief Act of 2021 (EPPRA) as part of the American Rescue Plan of 2021 (H.R. 1319), the Biden administration’s $1.9 trillion COVID-19 stimulus package. The bill was passed under the reconciliation process, requiring a simple majority vote. Because the Senate made some last-minute changes to EPPRA (which was initially proposed in the House of Representatives), the bill now moves back to the House, where it will be revoted on March 9. The Biden administration hopes to have the package signed into law before March 14.
EPPRA provides sweeping and broad-based relief to troubled multiemployer pension plans. The “Butch Lewis” moniker will be familiar to many, as it was used in prior multiemployer pension relief proposals. Earlier versions of the legislation proposed a federally backed loan program to troubled plans. These proposals were followed by proposals to allow troubled multiemployer pension plans to “partition” liabilities to the Pension Benefit Guaranty Corporation (PBGC). There were other, separate proposals to allow plans to adopt some defined contribution features to create so-called “composite plans.” Although the composite plan proposal may resurface in the near future, EPPRA effectively replaces all prior proposals to fix the most troubled multiemployer pension plans.
EPPRA takes a far more direct approach to the problem than prior proposals. Under EPPRA, eligible plans can receive financial assistance from a new Treasury-backed PBGC fund. The available financial assistance will be sufficient for eligible plans to pay all benefits for 30 years. This includes any benefits previously suspended under the Multiemployer Pension Reform Act of 2014 (MPRA), which must be restored by plans that apply for assistance under EPPRA. EPPRA’s special financial assistance will not, however, cover adjustable benefits that have been cut under a rehabilitation plan.
The assistance is payable in a single lump sum without any repayment obligation. To qualify for assistance, a multiemployer pension plan must meet one of four conditions:
- Be in critical and declining status
- Have previously imposed a benefit suspension under MPRA
- Be in critical status, have a modified funded percentage of less than 40% on a current liability basis, and have a ratio of active to inactive participants of less than 2 to 3
- Be insolvent
The PBGC may prioritize plans that are insolvent, that require more than $1 billion of assistance, or that have suspended benefits under MPRA.
EPPRA’s special financial assistance can only be used to make benefit payments and pay plan expenses, and it must be invested in investment-grade bonds (or other investments permitted by the PBGC). Earnings on the assistance must be segregated from other plan assets. The PBGC may impose restrictions on plans that receive assistance, including limits on accrual rates, retroactive benefit improvements, reductions in employer contributions, diversion of employer contributions, and withdrawal liability rules. The PBGC may also impose plan asset allocation requirements. Plans will not be permitted to suspend benefits under MPRA, but the PBGC will not prohibit other benefit reductions (including adjustable benefit suspensions), nor will the PBGC impose plan governance or funding requirements on eligible plans.
Notably, the final version of the bill does not specifically address how the financial assistance will impact a contributing employer’s withdrawal liability. The House bill specifically stated that employer withdrawal liability would not take into account any special financial assistance for 15 years after a plan received assistance, but this provision was removed by the Senate to avoid a procedural violation under the reconciliation process.
Nonetheless, given the PBGC’s broad authority to impose restrictions on plans receiving the assistance, including the authority to impose special withdrawal liability rules on such plans, we believe the PBGC will likely impose a similar withdrawal liability rule on any plan that receives assistance. We will be tracking developments on the bill’s impact on withdrawal liability and will update our clients when we know more.
To partially offset the cost of special financial assistance, the flat-rate premium for all multiemployer pension plans will increase to $52 (indexed) per participant beginning in 2031. Plans that receive special financial assistance will be required to continue paying PBGC premiums.
In addition to financial assistance, EPPRA provides additional multiemployer pension plan relief by permitting any plan to do the following:
- Elect the same zone status that applied in the previous plan year for either the 2020 or 2021 plan year
- Operate under a funding improvement or rehabilitation plan in plan year 2020 or 2021 to extend the improvement or rehabilitation period an additional five years
- Smooth the plan’s 2020 and 2021 investment losses over as many as 10 years
- Amortize over as many as 30 years the plan’s 2020 and 2021 experience losses
We fully expect the current version of EPPRA will pass the House and be signed into law before March 14.