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Multiemployer Pension Plans: An Overview

A multiemployer pension plan is defined under the Employee Retirement Income Security Act (ERISA) as a collectively bargained plan maintained by more than one employer, usually within the same or related industries, and a labor union. These plans are often referred to as "Taft-Hartley” plans.

Multiemployer pension plans are common in industries dominated by small businesses with fewer than 50 employees. Construction, trucking, retail food, garment manufacturing, entertainment (film, television and theater), and mining are the industries representing the largest number of multiemployer plans.

Leading U.S. Multiemployer Pension Funds

There are approximately 1,510 active multiemployer defined benefit pension plans covering 10.1 million participants, according to the Pension Benefit Guaranty Corporation (PBGC). Some of the largest multiemployer plans include:

• 1199SEIU Health Care Employees Pension Fund
• Western Conference of Teamsters Pension Plan
• Central States, Southeast and Southwest Areas Pension Funds
• Central Pension Fund of the IUOE & Participating Employers
• National Electrical Benefit Fund
• I.A.M. National Pension Plan

Financial Health of Multiemployer Plans

The Pension Benefit Guaranty Corporation (PBGC) expresses concern about future funding levels for multiemployer plans. According to the PBGC’s 2011 Annual Report,

In the past year, as a result of additional failures, the financial deficit of our multiemployer program increased sharply, from $1.4 billion last year to $2.8 billion as of September 30, 2011. The greater challenge, however, comes from those plans that have not yet failed: our estimate of our reasonably possible obligations (obligations to participants), described in our financial statements, increased to $23 billion.

While some of these current deficit calculations are subject to revision, the numbers will nevertheless remain high.

The PBGC expects the number of insolvent multiemployer plans to more than double over the next five years.

Financial Disclosure Requirements for Multiemployer Pension Funds

The Financial Accounting Standards Board (FASB) released Accounting Standards Update No. 2011-09, “Disclosures about an Employer’s Participation in a Multiemployer Plan,” to address a widespread concern that insufficient data was publicly available for investors to assess the financial health of multiemployer plans.

The main provisions of the FASB disclosure requirements include identification of the following:

1. The significant multiemployer plans in which an employer participates, including the plan names and identifying number;

2. The level of an employer’s participation in the significant multiemployer plans, including the employer’s contributions made to the plans and an indication of whether the employer’s contributions represent more than 5 percent of the total contributions made to the plan by all contributing employers;

3. The financial health of the significant multiemployer plans, including an indication of the funded status, whether funding improvement plans are pending or implemented, and whether the plan has imposed surcharges on the contributions to the plan; and

4. The nature of the employer commitments to the plan, including when the collective-bargaining agreements that require contributions to the significant plans are set to expire and whether those agreements require minimum contributions to be made to the plans.

Public entities became subject to the plans for fiscal years ending after December 15, 2011, while non-public entities must comply for fiscal years ending after December 15, 2012.

As transparency on pension costs increases, multiemployer plan sponsors are taking action to strengthen their funds. The Kroger Co. announced in late 2011 that four of the United Food and Commercial Workers (UFCW) multiemployer pension funds covering more than 65,000 Kroger associates from 14 UFCW local unions planned to merge into a consolidated fund effective January 1, 2012. The new arrangement is expected to reduce Kroger's annual pension contribution expense.

Orphan Retirees Place Pressure on Funding Levels

A distinctive feature of multiemployer plans is that as employers terminate plan participation through bankruptcy or simply going out of business, the remaining employers are left with the financial responsibility to continue funding benefits. Unlike the protection afforded to bankrupt corporations through the PBGC, multiemployer plans do not have an equivalent safety net. The PBGC can only take action in regard to a multiemployer plan after insolvency.

According to Congressional testimony of the Central States Southeast and Southwest Areas Pension Fund, for example, only four of the 50 largest employers that participated in the Central States Fund in 1980 remained in business as of 2010. More than 600 participating trucking companies declared bankruptcy between 1980 and 2010, while thousands of others went out of business without filing formal bankruptcy.

Multiemployer plan participants who worked for companies that are no longer in business are known as “orphan retirees.” As this number grows larger as a result of the poor economy, finances of the remaining plan sponsors become stressed as a result of unsustainable benefit obligations.

The Multiemployer Pension Plan Amendments Act of 1980 required that employers in a multiemployer plan who stop making contributions must pay a withdrawal liability. UPS, for example, paid a $6.1 billion withdrawal liability in cash to the Central States multiemployer fund in 2007 to be relieved of their funding obligations.

Many struggling multiemployer sponsors cannot afford this type of withdrawal payment. One unintended consequence of the 1980 legislation is that fewer new employers joined or formed multiemployer plans.

Multiemployer Plan Partitions

Congress anticipated the orphan retiree problem, and provided that the PBGC may order a “partition” for the employees of multiemployer plan sponsor that has gone through bankruptcy. This approach is politically sensitive, however, and in reality is infrequently used. Qualified partitions with less restrictive triggers have been considered, but concern about siphoning off benefits from other already underfunded government programs makes passage unlikely.

ABOUT THE AUTHOR: Mark Johnson, Ph.D., J.D., is a highly experienced ERISA expert. As a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances. He can be reached at 817-909-0778 or

August 12, 2012

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.

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