Often an employer has an organized labor force that belongs to a union that collectively bargains for the employer to contribute to the union sponsored multiemployer pension plan. A multiemployer pension plan is a plan sponsored by a union and managed by a board of trustees, with equal representation of union and employer trustees. The participating employers are obligated to contribute to the plan in the amount set forth under their respective collective bargaining agreements. Over the years, various factors have caused multiemployer plans to be severely underfunded, meaning they do not have enough assets to pay for the vested benefits of participants.
Under the Multiemployer Pension Plan Amendments Act (MPPAA) enacted in 1990, generally an employer may not exit a multiemployer plan without paying for the unfunded vested liabilities of its employees. Under the MPPAA, the plan is required to assess withdrawal liability against an employer that is no longer obligated to contribute to the plan. Generally, a withdrawal occurs when an employer ceases to be obligated to contribute to the multiemployer pension plan.
Additionally, the Pension Protection Act of 2006 enacted reforms aimed at improving the funding status of multiemployer plans by requiring the trustees to take steps to increase contributions, decrease plan liabilities, or both, should the plan's funding level fall below certain threshold percentages. In general terms, if a plan's assets constitute at least 80 percent of the present value of its current liabilities, no action is required. However, if the level of funding is below 80% the trustees must adopt either a funding improvement plan (if 65% funding or above) or a rehabilitation plan (if under 65%) designed to improve the funding level by increasing employer contributions or reducing benefits. Employers obligated to contribute to the multiemployer plan then are required to adopt a new contribution schedule under the applicable funding improvement or rehabilitation plan when its collective bargaining agreement is renewed. Thus, employers may be required under the law to pay more in contributions than they bargained for.
We can help employers who find themselves faced with issues of withdrawal liability or funding improvement or rehabilitation plans adopted by trustees to analyze the consequences and develop a strategy for complying in a cost effective manner.