A multiemployer pension plan is a type of defined benefit retirement plan established by a labor union and an industry or trade group to cover employees from two or more employers. These plans were widely embraced by newspaper companies many years ago as part of collectively bargained benefits for certain classes of employees. Employers typically contribute funds into these plans, which are comingled with the contributions from similar employers to fund the retirement of the labor unions’ members.
Under generally accepted accounting principles, these amounts are expensed as paid; however, no liability is recorded on each employers’ balance sheet for their share of the liability.
Multiemployer pension plans were popular because they allowed smaller companies the ability to offer traditional pension benefits without the administrative time and costs associated with single employer defined benefit plans. This was particularly true for highly unionized industries such as newspapers, construction, trucking, and manufacturing.
However, today, many multiemployer pensions have severe financial issues and are in a distressed state, much like single employer pension plans. There are numerous instances of participating companies going out of business, leaving the surviving companies to cover the pension benefits of all members. It is common for these liabilities to be in the millions of dollars, and in some instances, the liability may be higher than a company’s worth.
What are some steps that newspaper and other companies who participate in multiemployer pension plans can take in the face of these challenges? Companies need to take a proactive approach and analyze their potential future liability:
- Contact your pension plan administrator and request information regarding the plan’s financial statements and financial status, as well as an actuarial calculation of the company’s liability. This is a necessary step in order to determine the magnitude of the potential liability facing your company.
- Based on the information received and the proposed liability, complete an analysis to determine whether the company has the financial resources to consider a withdrawal from the plan.
- If your company is considering withdrawing from the plan, identify an attorney who has ERISA experience, and specifically, multiemployer pension plan experience. There are specific rules related to withdrawing from a multiemployer plan that need to be considered.
Organizations will need to negotiate the withdrawal from the plan with the labor union(s) sponsoring it. This process can be lengthy and contentious, and as noted above, require the assistance of an attorney. Items that need to be considered include the claw back period upon withdrawal (three years) and whether the payment to fund the liability will be paid in a lump sum or over a period of time, usually 20 years. Additionally, organizations may need the services of an actuary or accountant to assist in the process. Particular attention should be paid to the discount rate used in the actuary calculation to determine the liability.
Since many multiemployer pension plans are underfunded and distressed, it is important for media companies and other organizations to review their multiemployer defined benefit plan status, gain an understanding of their future obligations, and evaluate the organization’s ability to meet that future obligation.
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