NEWSLETTER

You can hardly pick up a newspaper or business magazine today without reading about the staggering costs of defined benefit multiemployer plans, both public and private, and the impact on companies, their workers and lenders.  There are approximately 1,500 private multiemployer plans covering more than 10 million workers and retirees.  According to the PBGC, about 24 percent of these plans are now in critical financial condition (less than 65 percent funded) and another 17 percent are endangered.  Up to 150 plans face insolvency and termination within the next 10-15 years.

Not only are the pension contribution costs rising for employers, but withdrawal liability is increasing exponentially, despite workforce reductions. It is common to see the cost of withdrawal liability in the range of $200,000-$600,000 per active worker when a plan is in critical financial condition.  And, it is often getting worse.

Risk management of pension liabilities now needs to be a top priority. Management needs to devise a plan to contain these costs that should involve the following:

1. Monitor the financial condition of any multiemployer plan in which you participate.  Review the annual funding status notices and request financial documents from the plan.
2. Obtain annual estimates of your own withdrawal liability to understand your current liability and to forecast future liability.  Comply with the Financial Accounting Standards Board (FASB) disclosure requirements for financial statements.
3. Understand and prevent partial withdrawal liability from occurring by monitoring your contribution base units and determining, in advance, whether a facility closing, outsourcing, or modification of a collective bargaining agreement will trigger a withdrawal.
4. Understand how the controlled group rules impact your liability, your assets at risk and whether a withdrawal has occurred.  It is not uncommon that multiple companies – whether a parent holding company or sister companies that own real estate, plant and equipment – are jointly liable for any withdrawal liability.  Do not assume that only the company with the collective bargaining agreement, which is making contributions to the plan, is at risk.
5. Scrutinize acquisitions and sales of companies to ensure that you are not unintentionally inheriting or triggering withdrawal liability, and if so, that it is factored into the sales or purchase price.  Buyer beware and seller be forewarned!
6. If you experience a withdrawal, retain a pension law expert who knows your rights, the proper procedures for appealing and contesting an assessment, and the defenses to unwarranted claims.  You need to know about the statutory cap on liability, the sale of assets rules, the limitation on liability when a company ceases doing business, the construction industry exemption, and the five-year, free-look rule that may apply.
7. Understand that an involuntary withdrawal, caused by the union or union employees, may trigger liability, as well as a plan termination and mass withdrawal by employers.
8. Evaluate whether the plan has adopted a hybrid, direct attribution plan that may be beneficial or whether the time is right to withdraw to freeze your liability.

 If you have any questions regarding this article, please contact the author, Kevin Williams, kwilliams@fordharrison.com, who is a partner in our Washington, D.C. office and member of FordHarrison's Employee Benefits practice group, or the FordHarrison attorney with whom you usually work.