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Multiemployer Pension Plans: An Overview

A multiemployer type of pension is defined underneath the Employee Retirement Income Security Act (ERISA) as being a collectively bargained plan maintained by more than one employer, usually within the same or related industries, plus a labor union. Efforts are often known as "Taft-Hartley" plans.

Multiemployer pension plans are common in industries dominated by small business owners with fewer than 50 employees. Construction, trucking, retail food, garment manufacturing, entertainment (film, television and theater), and mining would be the industries representing the most important variety of multiemployer plans.

Leading U.S. Multiemployer Pension Funds

Around 1,510 active multiemployer defined benefit pension plans covering 10.2million participants, in line with the Pension Benefit Guaranty Corporation (PBGC). A few of the largest multiemployer plans include:

• 1199SEIU Medical care Employees Pension Fund • Western Conference of Teamsters Retirement living • Central States, Southeast and Southwest Areas Pension Funds • Central Pension Fund from 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. Based on the PBGC's 2011 Annual Report,

During the past year, due to additional failures, the financial deficit individuals multiemployer program increased sharply, from $1.4 billion recently to $2.8 billion at the time of September 30, 2011. The more challenge, however, emanates from those plans that have not even failed: our estimate of our reasonably possible obligations (obligations to participants), described inside our fiscal reports, increased to $23 billion.

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

The PBGC expects the quantity of insolvent multiemployer promises to a lot more than double within 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 inside a Multiemployer Plan," to deal with an extensive concern that insufficient data was publicly published for investors to gauge the financial health of multiemployer plans.

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

1. The running multiemployer plans by which a company participates, such as the plan names and identifying number;

2. The degree of an employer's participation inside the significant multiemployer plans, such as the employer's contributions designed to the plans as well as an indication of whether the employer's contributions represent over Five percent with the total contributions designed to the blueprint by all contributing employers;

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

4. The in the employer commitments on the plan, including if the collective-bargaining agreements that need contributions to the significant plans will expire and whether those agreements require minimum contributions to be made for the plans.

Public entities became susceptible 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 consider action to boost their funds. The Kroger Co. announced in late 2011 that four of the United Food and Commercial Workers (UFCW) multiemployer pension funds covering greater 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 predicted to reduce Kroger's annual pension contribution expense.

Orphan Retirees Place Pressure on Funding Levels

An exceptional feature of multiemployer plans is the fact that as employers terminate plan participation through bankruptcy or simply just losing sight of business, the rest of the employers remain with all the financial responsibility to carry on funding benefits. Unlike the security afforded to bankrupt corporations with the PBGC, multiemployer plans will not have the same back-up. The PBGC is only able to make a change when it comes to a multiemployer plan after insolvency.

As outlined by Congressional testimony in the Central States Southeast and Southwest Areas Pension Fund, for instance, only four from the 50 largest employers that participated in the Central States Fund in 1980 remained in business by 2010. A lot more than 600 participating trucking companies declared bankruptcy between 1980 and 2010, while a large number of others failed without filing formal bankruptcy.

Multiemployer plan participants who helped firms that are no longer in operation are called "orphan retirees." Because this number grows larger on account of the poor economy, finances from the remaining plan sponsors become stressed on account of unsustainable benefit obligations.

The Multiemployer Monthly pension Amendments Act of 1980 needed that die-altersvorsorgepflicht employers in a multiemployer plan who stop making contributions should pay a withdrawal liability. UPS, for example, paid a $6.1 billion withdrawal liability in cash on the Central States multiemployer fund in 2007 being relieved with their funding obligations.

Many struggling multiemployer sponsors simply can't afford this sort 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 your employees of multiemployer plan sponsor containing been through bankruptcy. This approach is politically sensitive, however, and in reality is infrequently used. Qualified partitions with less restrictive triggers have already been considered, but concern about siphoning off advantages from other already underfunded government programs makes passage unlikely.