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Warehousing, Longshore, Retail, Manufacturing, Mining, Hotel, Garment, Entertainment Industries
Warehousing, Longshore, Retail, Manufacturing, Mining, Hotel, Garment, Entertainment Industries
Warehousing, Longshore, Retail, Manufacturing, Mining, Hotel, Garment, Entertainment Industries
Warehousing, Longshore, Retail, Manufacturing, Mining, Hotel, Garment, Entertainment Industries
Warehousing, Longshore, Retail, Manufacturing, Mining, Hotel, Garment, Entertainment Industries
Warehousing, Longshore, Retail, Manufacturing, Mining, Hotel, Garment, Entertainment Industries
Warehousing, Longshore, Retail, Manufacturing, Mining, Hotel, Garment, Entertainment Industries
Warehousing, Longshore, Retail, Manufacturing, Mining, Hotel, Garment, Entertainment Industries
Warehousing, Longshore, Retail, Manufacturing, Mining, Hotel, Garment, Entertainment Industries
Warehousing, Longshore, Retail, Manufacturing, Mining, Hotel, Garment, Entertainment Industries
Warehousing, Longshore, Retail, Manufacturing, Mining, Hotel, Garment, Entertainment Industries
Warehousing, Longshore, Retail, Manufacturing, Mining, Hotel, Garment, Entertainment Industries
Warehousing, Longshore, Retail, Manufacturing, Mining, Hotel, Garment, Entertainment Industries
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Warehousing, Longshore, Retail, Manufacturing, Mining, Hotel, Garment, Entertainment Industries

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  1. “ Managed” Mass Withdrawal Under Title IV of ERISA 2007 Enrolled Actuaries Meeting March 27, 2007 L ars Golumbic Groom Law Group, Chtd.
  2. Multiemployer Plan <ul><li>Collectively-bargained and maintained by more than one employer, i.e. , “controlled group” </li></ul><ul><li>Board of Trustees has equal employer and employee representation </li></ul><ul><li>Common in construction, trucking and warehousing, longshore, retail, manufacturing, mining, hotel, garment, entertainment industries </li></ul><ul><li>Bargaining parties allocate pay package among wages, health and pension </li></ul><ul><li>Contribution rate set for the term (3-5 years) of the collective bargaining agreement ($x/hour or day) </li></ul><ul><li>Plan may provide a single level of benefit for set contribution rate, or a “menu” of benefit levels that can be purchased for specified rates </li></ul>
  3. Multiemployer Plan’s Funding Obligations <ul><li>Minimum Funding Standards </li></ul><ul><li>Funding Deficiency & Its Consequences </li></ul><ul><ul><li>Occurs when negotiated contributions do not meet minimum required contributions under the Internal Revenue Code </li></ul></ul><ul><ul><li>Notwithstanding obligations negotiated in collective bargaining agreements, employers are liable to the Plan for the additional contributions that would be needed each year to avoid a funding deficiency </li></ul></ul><ul><ul><li>Automatic excise tax of 5% on employers’ allocable share of funding deficiency and potential additional tax of up to 100% assessed by IRS against contributing employers. </li></ul></ul><ul><ul><li>IRS has taken aggressive position with respect to collection of excise taxes. IRS resists waiving or compromising five percent excise taxes. </li></ul></ul>
  4. Multiemployer Plan’s Funding Problems: Root Causes <ul><li>Unprecedented Investment Losses </li></ul><ul><li>Declining Industry </li></ul><ul><ul><li>More Retirees Than Actives </li></ul></ul><ul><ul><li>Declining Population of New Employers </li></ul></ul><ul><ul><li>Work Has Moved from the Northeast and Midwest to Southwest and West </li></ul></ul><ul><li>Declining Economy </li></ul><ul><ul><li>Economic Slowdown After 9/11 </li></ul></ul><ul><li>Bad Investments / Bad Advice </li></ul><ul><li>To avoid liability, employers may seek to withdraw, lowering contribution base, which further exacerbates problem. </li></ul>
  5. Funding Options <ul><li>Attempt to collect from employers that have withdrawn </li></ul><ul><li>Increase Level of Contributions to the Plan </li></ul><ul><li>Apply for a Minimum Funding Waiver </li></ul><ul><li>Apply for an Extension of the Amortization Period </li></ul><ul><ul><li>Must prove temporary substantial business hardship </li></ul></ul><ul><ul><li>Requires projections from actuary showing steady improvement in funding condition of plan. </li></ul></ul><ul><ul><li>New law – </li></ul></ul><ul><ul><ul><li>Automatic 5-year extension of amortization period if plan is facing a funding deficiency in 10 years and adopts corrective plan </li></ul></ul></ul><ul><ul><ul><li>Additional 5-year extension available at IRS’s discretion, based on current-law standards </li></ul></ul></ul><ul><li>Merge with a Better-Funded Plan </li></ul>
  6. Funding Options – New Legislation <ul><li>Yellow Zone </li></ul><ul><ul><li>Under the “PPA,” plan is in “endangered” status if – </li></ul></ul><ul><ul><ul><li>Less than 80% funded or </li></ul></ul></ul><ul><ul><ul><li>Projected to have a funding deficiency in 7 years </li></ul></ul></ul><ul><ul><li>If a plan is in endangered status, trustees must – </li></ul></ul><ul><ul><ul><li>Adopt and propose to bargaining parties a funding improvement plan to increase plan’s funded percentage to avoid funding deficiency over a specified period of years </li></ul></ul></ul><ul><ul><ul><li>No benefit increases while funding improvement plan is in effect absent actuarial certification that increase consistent with plan </li></ul></ul></ul><ul><ul><ul><li>No decrease in contribution rates while funding improvement plan is in effect </li></ul></ul></ul><ul><li>Default schedule reducing future benefit accruals imposed if bargaining parties can’t agree on funding improvement plan </li></ul>
  7. Funding Options – New Legislation (cont’d) <ul><li>Red Zone </li></ul><ul><ul><li>Under new law, plan is in “critical” status if – </li></ul></ul><ul><ul><ul><li>Funding deficiency in 4 years (5 years if 65% or less funded), not taking into account any amortization extension; or </li></ul></ul></ul><ul><ul><ul><li>Insolvent in 5 years (7 years if less than 65% funded) </li></ul></ul></ul><ul><ul><li>If plan is in critical status, trustees must - </li></ul></ul><ul><ul><ul><li>Adopt and propose to bargaining parties a rehabilitation plan for plan to emerge from critical status or forestall insolvency </li></ul></ul></ul><ul><ul><ul><li>Default schedule is imposed if bargaining parties fail to approve rehabilitation plan </li></ul></ul></ul><ul><ul><li>Red Zone “Cuts” allowed for adjustable benefits (early retirement, etc., recent benefit increases), but core normal retirement age benefits and retirees’ pensions protected. Cuts may be inadequate if large portion of fund’s liabilities are associated with retired participants. </li></ul></ul><ul><ul><li>Employers do not have to make funding deficiency contributions or pay any excise taxes if the bargaining parties adopt and follow a rehabilitation plan </li></ul></ul>
  8. “ Unmanaged” Mass Withdrawal <ul><ul><li>Section 4041A(a)(2) of ERISA </li></ul></ul><ul><ul><ul><li>Termination of a multiemployer plan by withdrawal of every employer from the plan or cessation of every employer’s obligation to contribute </li></ul></ul></ul><ul><ul><li>Section 4219(c)(1)(D) of ERISA </li></ul></ul><ul><ul><ul><li>Termination of a multiemployer plan by withdrawal of “substantially all” employers pursuant to an agreement or arrangement to withdraw from the plan </li></ul></ul></ul><ul><ul><li>Mass Withdrawal Liability – Rules & Consequences </li></ul></ul><ul><ul><ul><li>Employers owe withdrawal liability based on share of plan’s unfunded vested benefits, calculated using conservative PBGC assumptions </li></ul></ul></ul><ul><ul><ul><li>“ Claw back” presumption for employers that withdrew within two plan years prior to plan year in which mass withdrawal occurred </li></ul></ul></ul><ul><ul><ul><li>No 20 year cap on withdrawal liability payments </li></ul></ul></ul>
  9. “ Unmanaged” Mass Withdrawal (cont’d) <ul><ul><ul><li>No “de minimis” reduction of withdrawal liability </li></ul></ul></ul><ul><ul><ul><li>Employers are required to pay quarterly installments based on highest historical contribution rates for the plan </li></ul></ul></ul><ul><ul><ul><li>Employers may have to “book” their withdrawal liability and may, as a consequence, have difficulty obtaining credit and may be forced to file for bankruptcy </li></ul></ul></ul><ul><ul><ul><li>Withdrawal liability of employers in bankruptcy can roll over to non-bankrupt employers, leading to additional bankruptcy filings and limiting Plan’s collection efforts </li></ul></ul></ul><ul><ul><ul><li>Failure to collect withdrawal liability could cause the Plan to become insolvent or greatly accelerate its path to insolvency. When a plan becomes insolvent, benefit payments must be reduced to PBGC’s guaranteed level, a maximum of $12,870 per year for a participant with 30 years of service </li></ul></ul></ul>
  10. “ Managed” Mass Withdrawal – Benefits to the Bargaining Parties and the Plan <ul><li>Maximizes the Plan’s Recovery of Withdrawal Liability </li></ul><ul><li>Avoids or Postpones the Reduction in Benefits that could Occur with Plan Insolvency </li></ul><ul><li>Provides for Meaningful Benefit Accruals for Active Employees Going Forward, and Leaves Retirees as Well Off, if not Better, Than They Would have Been </li></ul><ul><li>Employers Avoid Bankruptcy Or Being Forced out of Business </li></ul><ul><li>Employers Might be Able to Avoid or Substantially Reduce Excise Tax Liability </li></ul>
  11. “ Managed” Mass Withdrawal - The Process <ul><li>Section 4224 of ERISA </li></ul><ul><ul><li>PBGC has the authority to approve alternative rules for settling employer obligations </li></ul></ul><ul><li>Alternative Withdrawal Liability Rules </li></ul><ul><ul><li>Provide a plan a greater recovery than under an “unmanaged” mass withdrawal </li></ul></ul><ul><ul><li>Require employers to pay the plan a specified amount in lieu of statutory mass withdrawal liability </li></ul></ul><ul><ul><li>Leave “room” in a pay package for ongoing contributions to another pension plan </li></ul></ul><ul><ul><li>Interplay of alternative rules and new law </li></ul></ul><ul><li>Independent Valuation Expert </li></ul><ul><ul><li>Independent financial analysis showing that plan’s collections under alternative rules will equal or exceed amounts likely to be recovered under an “unmanaged” mass withdrawal </li></ul></ul>
  12. “ Managed” Mass Withdrawal - The Process (cont’d) <ul><li>PBGC Approval </li></ul><ul><ul><li>Submit alternative withdrawal liability rules to PBGC for review and approval </li></ul></ul><ul><ul><li>Draft plan amendment adopting alternative rules approved by PBGC </li></ul></ul><ul><li>Global Settlement & Plan Freeze </li></ul><ul><ul><li>Draft global settlement among employers and plan for settlement of mass withdrawal liability and unpaid contributions </li></ul></ul><ul><ul><li>If fewer than all employers withdraw, terminate plan by adopting an amendment to freeze the plan as of the effective date of the settlement, i.e., the “mass withdrawal date.” </li></ul></ul><ul><li>IRS Settlement </li></ul><ul><ul><li>Negotiate and draft closing agreement with IRS settling any funding excise taxes incurred prior to termination of the plan </li></ul></ul>
  13. “ Managed” Mass Withdrawal Under Title IV of ERISA <ul><li>Lars Golumbic </li></ul><ul><li>[email_address] </li></ul>

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