When the House passed the most recent budget bill, it included a provision related to multiemployer pension plan reform. In my last post, I suggested it might be too early to count on anything being final in that bill until it made it into law. Well, go ahead and start considering it because not only did the Senate pass it, but President Obama signed it into law. And some professionals are touting it as the most comprehensive legislation affecting multiemployer pension plans since the Multiemployer Pension Plan Amendments Act of 1980.

The Pension Benefit Guaranty Corporation has a component called the “multiemployer pension insurance program” which is, according to the PBGC, going to be insolvent in 10 years. The idea behind the “Multiemployer Pension Reform Act of 2014” is that by making certain changes to multiemployer pension plans, and specifically to underfunded pension plans, PBGC finances will improve. Of course the first part of this repair is that the annual PBGC insurance premiums for multiemployer plans will double to $26 per participant in 2015, and increase over time.

See also: Multiemployer pension reforms signed into law

 

Along with the premium increases come certain specific changes for multiemployer pension plans. First, some multiemployer funds will be permitted to reduce the pension benefits of plan participants, including benefits for some retirees already receiving benefits. This is a pretty significant change because it would allow for a cutback of benefits provided certain criteria are met. It requires a vote of all participants, including actives and retirees, but that vote can be overridden by Treasury if it concludes the pension plan is a “systemically important plan.” What that means is that it is a plan that the PBGC projects will need more than $1 billion in financial assistance if the reductions are not made.

Second, under the Pension Protection Act, we created “yellow zone (endangered)” and “red zone (critical)” designations for plans. Now, plans in these zones will be given additional options in making their annual funding determinations. This also removes the PPA sunset provision that was expected to expire at the end of this year. Third, funds must now disregard surcharges that were imposed under the PPA when calculating an employer’s withdrawal liability. This should cause future withdrawal liability to be reduced, assuming the plan funding status otherwise improves.

Finally, the act gives the PBGC added options when dealing with how it will allocate liabilities resulting from employers who withdrew from a plan and could not pay their withdrawal liability or contributions (say in bankruptcy). Plus the PBGC will also be able to be more flexible in facilitating merger of plans, particularly if the proposed merger improves the “aggregate funded status” of the merged plan.

So, all things being equal, the Act should have a positive impact on employers who withdraw from multiemployer funds in the future because it is designed to help plans improve their funding status. However, whether or not funds will take corrective actions, and whether funds will follow these rules remains to be seen. Going forward, then, employers considering withdrawing from a multiemployer pension fund should make themselves aware of the options available to funds and see if they can determine what steps the fund may be taking under the Act. And fund trustees should be carefully considering what steps the fund should be taking to respond to the available options. This is not an elimination of withdrawal liability, but it is the first development in a while that provides some potential relief.

Keith R. McMurdy is a partner with Fox Rothschild focusing on labor and employment issues; he can be reached at kmcmurdy@foxrothschild.com or (212) 878-7919.

The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.

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