On March 25, 2019, Associate Attorney John Sexton attended a webinar titled “Multiemployer Pension Plan Withdrawal: An In-Depth Examination.” The webinar focused on the evolution of the Multiemployer Pension Plan Amendments Act and strategies for minimizing liability.
The Multiemployer Pension Plan Amendments Act (MPPAA) was enacted in 1980. This Act created withdrawal liability whereby employers withdrawing from multiemployer pension plans must, upon withdrawal from a plan, pay a share of the plan’s unfunded vested benefits. “Withdrawal,” as defined by Title IV of ERISA, can occur through a complete withdrawal or a partial withdrawal.
A complete withdrawal occurs through a permanent cessation of either the employer’s obligations to contribute under the plan or a cessation of the employer’s covered operations under the plan. Events that decrease the employer’s participation under the plan but do not completely terminate an employer’s participation in the plan trigger a partial withdrawal. Specifically, it is defined as either a 70% decline in employer contributions over three plan years, or a partial cessation of the employer’s contribution obligation. This partial cessation can occur through a situation where an employer obligated to contribute to the plan under more than one collective bargaining agreements ceases to have an obligation to contribute to one or more-but not all- of those agreements, provided that the employer continues to perform work in the jurisdiction of the collective bargaining agreement of the type for which contributions were previously required or transfers such work to another location. Alternatively, the partial cessation can occur when an employer has an obligation to contribute for more than one geographic location and causes contributions at one of them but continues to perform work at the facility of the type for which the obligation to contribute ceased.
The aggregation of related employers also frequently comes up in the withdrawal liability context. A complete withdrawal does not occur until all members of a controlled group permanent cease covered operations or permanently cease to have an obligation to contribute under the plan. Regarding corporate transactions, stock sales generally do not trigger withdrawals, and business reorganizations do not constitute a withdrawal if no interruption in contributions occurs and the obligation to contribute continues.
The Rehabilitation for Multiemployer Pensions Act was recently introduced. This proposed legislation was introduced in an effort to address underfunding among some union multiemployer pension plans. The sponsors of the bill estimate that there are around 1,400 multiemployer plans in existence in the U.S. This covers about 10 million people across the country. The legislation aims at supporting the 1.5 million Americans who are in plans that are quickly running out of money.
The bill would establish a Pension Rehabilitation Administration agency within the Department of Treasury. This agency would have the authority to issue bonds in order to finance loans to critical and declining status multiemployer pension plans. It was introduced to in the House in January of 2019. It still has a long way before it becomes law, but the Pension Rehabilitation Administration should interest its trackers, as expected investment returns are predicted to decrease according to recent fund meetings we have had with Trustees and investment consultants.