Information Center

Common Questions about the Butch Lewis Act

12/06/21
Law

1. What is the Butch Lewis Act?

The Butch Lewis Emergency Pension Plan Relief Act is legislation to help severely financially troubled multiemployer plans meet their benefit obligations to retired participants. It was included as part of the American Rescue Plan Act of 2021, which President Biden signed into law on March 11, 2021.

2. How does the Butch Lewis Act work?

The Butch Lewis Act identifies certain multiemployer plans suffering severe financial shortfalls—often due to factors beyond a plan’s control, such as the deregulation of the trucking industry, automation, precipitous declines in the stock market. It then allows the identified plans to apply for financial assistance designed to permit the plan to continue paying benefits.

3. What plans are entitled to relief?

There are four categories of plans that may apply for financial assistance:

a. Plans that became insolvent after the passage of the Multiemployer Pension Reform Act of 2014 (“MPRA”). A plan is considered insolvent when a plan’s financial resources are inadequate to pay all benefits due during the next year. There are 42 plans in this category.

b. Plans that were permitted by the Department of the Treasury to “suspend” benefits in accordance with MPRA. There are 18 such plans in this category.

c. Plans that are in “critical and declining” status by the end of 2022. A plan will generally be in critical and declining status if it is projected to become insolvent within either 15 or 20 years, depending on a plan’s characteristics. It is estimated that there are between 125 and 150 plans in this category.

d. Certain other plans that are in “critical status,” are less than 40% funded, and have 3 or more inactive participants for every active participant. It is estimated that there are between 75 to 100 plans in this category.

You would have received notices if your plan is insolvent (category one above), had benefit suspensions under MPRA (category two), or is currently in critical and declining status (most plans in category three).

4. Can a plan decide not to seek Butch Lewis assistance?

Yes. Most observers, however, believe that the great majority of plans eligible for relief will apply for and be granted it. We discuss this further in question 18.

5. What happens if an eligible plan decides not to seek relief?

Most such plans will eventually become insolvent, with benefits ultimately reduced to the PBGC guarantee levels for multiemployer plans.

6. What happens if my plan applies for and is granted Butch Lewis relief?

The PBGC will pay the plan a lump sum that is sufficient for the plan to continue benefits through the year 2051. The question of how that calculation is done, and whether the value of expected future contributions is included in determining how much the plan needs through 2051, has not been fully resolved and is discussed briefly in question 18.

7. If my benefits have previously been reduced under MPRA or because my plan became insolvent (after December 14, 2014), will my benefits be restored to their pre-cut levels if an application for Butch Lewis relief is approved?

Yes. In fact, a plan may choose to restore your benefits going forward even before it applies for Butch Lewis relief. But a plan must restore your benefits to their prior level if it files for relief and its application is approved. (And as discussed in response to question 10, the plan will also generally be required to pay you back for the benefits reductions you already suffered.)

8. Does this apply to all reduced benefits?

Unfortunately not. The only benefits that a plan can restore are those that were reduced because a plan became insolvent or because the Department of the Treasury approved the plan’s application to “suspend” benefits under MPRA.

9. So what types of benefit cuts are not restored?

A plan is not permitted to restore benefits that were reduced for reasons other than plan insolvency (occurring after the passage of MPRA) or approval of a MPRA application to reduce benefits. The BLA does not permit plans to restore benefits pursuant to the Pension Protection Act of 2006, which permitted certain underfunded multiemployer plans to reduce or eliminate some benefit options, such as subsidized early retirement benefits (such as a 30-and-out benefit).

10. Will the plan make up for benefit losses I suffered before my benefit amount was restored to their original levels?

In the great majority of cases, the answer is yes. Once the plan’s application is approved, the plan will make back payments. The plan has a choice of making those payments in a single lump sum or in monthly installments over a five-year period. Although it is not entirely clear, it appears that a surviving spouse will not receive make-up payments for reductions in the participant’s benefit that occurred before the participant’s death?

11. Will the make-up payments include interest?

No.

12. When can my plan apply for relief?

Plans that that became insolvent after enactment of MPRA or are expected to become insolvent by March 11, 2022, are currently eligible to file applications. Beginning on December 27, 2021, an eligible plan can apply if it is projected to become insolvent within one from the date of its application. Plans that have implemented MPRA cuts before March 11, 2021, may apply for relief beginning on January 1, 2022. And the Central State pension plan, which is the largest multiemployer plan, can apply on April 1, 2022. And plans that are projected to become insolvent by March 2023 can file applications beginning on July 1, 2022. Finally, plans projected to become insolvent before 3/11/2026 and plans whose assistance grants would exceed $1 billion, have an application target date of February 11, 2023. The PBGC has not yet announced the schedule for other plans to apply. The PBGC has also indicated that it may accelerate application dates if it can process applications faster than anticipated.

13. Should I worry if the PBGC has not yet opened the application process for my plan?

No. The PBGC simply does not have the resources to consider all plans at once and its selective opening of the application process follows a statutory recommendation. The plans eligible to apply the earliest are the ones in which participants have already suffered benefit cuts, which seems a good plan.

14. How long will it take PBGC to decide whether to approve an application?

120 days. If it does not rule by then, the application is automatically approved.

15. What happens if the PBGC doesn’t approve an application?

The plan can revise its application and resubmit. A plan can also withdraw its application during the process and resubmit.

16. Are there special rules for plans that accept financial relief under Butch Lewis?

Yes. There are some restrictions on the investments a plan can make with the financial relief, and the PBGC has invited comments on what types of investments will be permissible. A plan will generally not be permitted to decrease the rate of employer contributions and there are also restrictions on improving benefits. A plan that accepts relief is also prohibited from applying to suspend benefits under MPRA at a later date.

17. What happens if a plan accepts Butch Lewis relief and then later exhausts its resources?

Benefits can be reduced to PBGC guarantee levels. The hope is that with the financial relief, this will seldom happen and if it does happen, not for decades.

18. Are there are any reasons why an eligible plan might not apply for financial assistance?

As we earlier said, we think the great majority of plans eligible for financial relief will apply for such relief. But some trustees are concerned about some positions that the PBGC has taken in interim guidance. For example, there are some actuarial and calculation issues in that guidance that some plan trustees are concerned might create trouble for plans in the future. And the interim guidance might in some cases reduce the financial penalty for employers to withdraw from a plan. In addition, the Butch Lewis Act requires that financial assistance be invested in investments that are safe but offer relatively low returns. The PBGC has not yet issued final guidance on what investments will be permissible. The PBGC received many comments on how to improve the interim guidance to help plans move forward in the future. We are hopeful it will accept some of these comments, but even if it does not, we expect most eligible plans to apply for financial assistance.

Do you still have questions? Contact us here.

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