Since the passage of the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”) the financial well-being of employers contributing to multi-employer defined benefit pension plans has been tied to the funding of those plans, many of which have been underfunded for decades. The downward spiral has been exacerbated by several unalterable factors: an increase in retirees, a decrease in active participants whose contributions support the retirees and an increase in life expectancy.

 

Recent events have highlighted the worsening of the crisis. On October 1, 2015, the Central States Southeast and Southwest Area Pension Fund, one of the largest multi-employer pension funds in the country, filed an application with the Treasury Department requesting permission to reduce core benefits for participants in accordance with the Multiemployer Pension Reform Act of 2014 (“MPRA”) and sent an explanation to its participants.   If the application is approved, it will potentially impact pensions of 400,000 participants.

 

MPRA represented a recognition by Congress that existing legislation was insufficient to adequately protect the solvency of multi-employer plans and the pension benefits of millions of participants. Specifically, the Pension Benefit Guaranty Corporation (“PBGC”) — the statutory “back stop” in ERISA — lacks sufficient assets to meet its mandate to provide pensions to participants of failing plans.

 

Although long a Congressional concern, the financial health of individual funds was an unknown area until 2006. The issue was demystified by the Pension Protection Act of 2006 (“PPA’06”), which sought transparency by requiring plans to reveal their funding status on an annual basis through the distribution of actuarial certifications and required the adoption of procedures for “funding rehabilitation.” Under the “rehabilitation plans,” contribution amounts ceased to be an issue of negotiation. Rather, contribution amounts became mandated by the pension fund.

 

Soon after PPA’06’s effective date of January 1, 2008, the stock market tanked.   Despite the subsequent rebound in the stock market, the over-all fiscal health of many multi-employer plans failed to improve.

 

The Central States application should serve as a warning.   All employers contributing to multi-employer pension plans must remain alert concerning the status of those funds and should not agree to proposed terms in negotiations without considering the impact upon the company’s financial well-being.

 

Employers should become pro-active and perform an annual “benefits due diligence.” It should be two-fold: (1) a review of the annual Form 5500 and (2) an annual  request to the pension fund for an estimate of the withdrawal liability the employer would incur if it withdrew on the last day of the plan year preceding the date of request. The pension fund’s response must also contain an explanation of the methodology used in determining withdrawal liability. The fund is required to provide this information under Section 101(l) of ERISA.

 

We will keep you posted on developing issues involving multi-employer defined benefit pension funds.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Paul A. Friedman Paul A. Friedman

Paul A. Friedman is a principal in the White Plains, New York, office of Jackson Lewis, P.C. His legal practice is focused on ERISA litigation, labor and Multiemployer Pension Plan Amendments Act (MPPAA) arbitrations and is well grounded in his earlier experience as…

Paul A. Friedman is a principal in the White Plains, New York, office of Jackson Lewis, P.C. His legal practice is focused on ERISA litigation, labor and Multiemployer Pension Plan Amendments Act (MPPAA) arbitrations and is well grounded in his earlier experience as outside counsel to numerous union pension funds. During years of litigating cutting-edge ERISA issues before the U.S. Department of Labor, U.S. district courts, bankruptcy courts and courts of appeal on behalf of employers, plan sponsors and ERISA plan fiduciaries, Paul sometimes finds his own prior landmark decisions cited to him.

For Paul, MPPAA has all the excitement of a trial – it is an intricate and counter-intuitive statute. He has first chair experience in more than 40 jury trials and has handled hundreds of arbitrations and bench trials on all aspects of ERISA. ERISA knows no organizational bounds and so Paul has defended cases for clients representing many industry sectors, including life sciences, financial services, energy, hospitality, and construction.

Paul has served as litigation counsel for numerous multi-employer and single-employer employee benefit plans in ERISA matters, where he:

  • Devotes his practice mainly to the defense of employers, plan sponsors, fiduciaries, and financial institutions against claims brought under ERISA by benefit funds, plan beneficiaries, and the U.S. Department of Labor. He handles issues related to breach of fiduciary duties, excessive plan expenses, benefit entitlement issues retiree health benefits, and functional fiduciary liability
  • Successfully represents companies as plan sponsors against claims of participants and qualified beneficiaries for violations of COBRA
  • Defends employers that have been assessed withdrawal liability under MPPAA or have experienced increased liability due to the passage of the Pension Protection Act of 2006
  • Performs employee benefits due diligence for buyers or sellers in mergers and acquisitions transactions, filling a knowledge gap between labor and financial counsel, ensuring that buyers and sellers price-in or mitigate against ERISA violations and potentially millions of dollars in liabilities
  • Conducts comprehensive strategic reviews of clients’ current operations to avoid or mitigate against exposure to ERISA enforcement and risk of civil and criminal charges brought against company executives, principals, and trustees

In the last decade, he has developed a business model for use by businesses across a broad spectrum of ERISA issues from the beginning of the ownership of these companies to their sale. He also provides benefits guidance to Mergers and Acquisitions counsel in complex transactions.

Outside of work, Paul is an ardent Civil War and World War I buff. He expressly enjoys traveling to Europe and touring World War I battlefields.

Read more about Paul A. Friedman
Show more Show less
Related Posts
What Took So Long? Democrats Quickly Introduce Pension Relief Bill
January 24, 2021
Employers in Union-Related Group Health Plans Must Still Comply with ACA Reporting Requirements
December 24, 2019
How Multiemployer Pension Plans Continue To Extract More From Contributing Employers Than What They Bargained For
June 21, 2019