New Rules for Multi-Employer Pension Plans

Among the many tax extender provisions in the newly signed Tax Increase Prevention Act of 2014 (the “Act”) was a provision that could potentially affect multi-employer defined benefit pension plans, such as union plans or groups of companies sharing the same pension plan. Single company pension plans would not be impacted.

Under the old law, a plan sponsor was not allowed to cut an employee’s benefits once they were earned unless the plan sponsor was in bankruptcy.  Instead, if a plan was underfunded, multi-employer plans could take other actions, such as reducing benefits for current employees that have not earned the benefits yet, or increasing employee or employer contributions to the plan.

Under the Act, which began in 2015, if a multi-employer pension plan is projected to run out of money in 10-20 years, then the plan sponsor could cut benefits to those already retired by 30-60 percent.  Retirees over age 80 would be protected from these cuts. Participants in these plans would be given the right to vote on the cuts before the reductions were permitted, but the US Treasury could override the vote if the plan was “systemically important” -meaning that it poses a large risk to the PBGC.

According to Congress, this provision was added to the Act to help protect the Pension Benefit Guaranty Corporation (PBGC).  The PBGC steps in to protect retiree’s future benefits when a company goes bankrupt or shuts down.  Almost all pension plans pay premiums to the PBGC to guard the assets set aside to pay their retirees.  The new law also doubles the premiums paid by the multi-employer pension plan to the PBGC each year to $26 per person.

According to the Federal Agency, the insurance pool for pension plans covered by this new law is $42.4 billion in the hole and will likely run out of money within 10-15 years.  The two largest multi-employer pension plans contributing to this deficit are the United Mine Workers Union and the Central States Teamsters Union.

If you are concerned that your plan may be underfunded or would like to discuss its future projection, please contact us.

About the Authors

Cindy H. Mitchell
Cindy H. Mitchell
James E. Merklin
James E. Merklin
Partner, Assurance and Advisory


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