A Road Map to Major Changes Coming to Multi-Employer Pension Plans: What Participating Employers Should Do Now

Polsinelli PC. In California, Polsinelli LLP
A Road Map to Major Changes
Coming to Multi-Employer Pension
Plans: What Participating Employers
Should Do Now
Andrew Douglass, Chair of Employee Benefits and Executive Compensation Practice Group
Direct: 312.873.2933 Email: adouglass@polsinelli.com
Bradley Kafka, Vice Chair of Labor and Employment Practice Group
Direct: 314. 622.6623 Email: bkafka@polsinelli.com
Presented by:

real challenges. real answers. sm
MPRA Executive Summary
In December 2014, the Multi-Employer Pension Reform Act of 2014
("MPRA") was enacted to help address the severe underfunding of
multi-employer pension plans and the teetering finances of the
Pension Benefit Guaranty Corporation ("PBGC").
The MPRA is the most significant legislation affecting multi-
employer plans since 1980.
Troubled pension funds may now seek to reduce the benefits of
participants, including benefits for retirees already in pay-status.
The PBGC will have additional flexibility to help underfunded plans
by providing its financial assistance and facilitating fund mergers
and partitions.
The MPRA may also impact an employer's withdrawal liability.

Today’s Learning Objectives
• How you can evaluate the current funded
status of a multi-employer pension fund in
light of the MPRA changes
• The ongoing risks of continued
participation in multiemployer pension
funds
• How your company's collective bargaining
and overall business strategies may be
impacted by the MPRA

Our “Road Map”… in 4 Steps
Step 1
Understand current state of multiemployer
pension funds generally and the key MPRA
changes that will impact them.
Step 2
Identify all collective bargaining agreements,
participation agreements, and multiemployer
pension funds which require your company to
make contributions.

Our “Road Map”… in 4 Steps
Step 3
Analyze each pension fund’s status – and where it
may be heading in future years.
Step 4
Evaluate your company’s options and determine
optimal course of action:
– Maintain ongoing participation?
– Withdraw from the fund?
– Adjust collective bargaining strategies?
– Consider other ways to mitigate business
risks?

Background
ERISA enacted in 1974
– Comprehensive rules for employee benefit plans
– Many protections for employees, including “anti-
cutback” prohibition for accrued benefits under
pension plans
ERISA amended by MPPAA in 1980
– Added withdrawal liability rules and other specific
requirements for multiemployer plans
Pension Protection Act of 2006 (PPA) added
new rules to improve funded status of plans
over time

Background
Market downturns have caused volatility in
funds’ asset investments
– “Dot com” market bust of early 2000s
– Great recession 2008-2009
Low interest rate environment has increased
benefit liabilities of funds
Loss of market share by unionized employers
Demographic trends with increasing numbers
of retirees, but fewer and fewer active
employees

Current Situation
1,400 multiemployer pension plans in U.S.
10 million union workers covered
Total unfunded liabilities for all plans is
over $300 billion
– PBGC is quasi-governmental agency that
provides limited insurance guarantees for
multiemployer plans

Key MPRA changes
Changes to improve PBGC’s finances and
provide additional flexibility to its
multiemployer plan insurance program
– Beginning in 2015, PBGC insurance premiums
will double from $13 per participant to $26;
premiums in future years increased for inflation
– Additional tools to provide PBGC financial
assistance to facilitate plan mergers and
“partitions”
May allow funds to carve off “orphan” liabilities
of those employers who previously withdrew
and did not pay off total withdrawal liabilities

Key MPRA changes
Withdrawal liability changes
– “Red” and “Yellow” zone funds no longer permitted
to include certain contribution surcharges in the
calculation of an employer’s withdrawal liability
– Should reduce an employer’s withdrawal liability if it
decides to leave the fund in the future, although the
amount of any reduction will vary greatly by
employer and fund
– Additional rules if fund seeks MPRA benefit
reductions
Expanded disclosure obligations for funds
– Funds must now provide additional governing
documents and detailed financial information to
employers, participants, and labor organizations

Key MPRA changes
New funded status rules for funds
– New funding-based classifications for
multiemployer plans and additional
flexibility for funds’ actuaries
– “Critical and declining” status
determination needed to allow funds to
seek reductions in benefits
Requires determination of number of years before fund
is projected to become “insolvent”
Special rules if plan is less than 80% funded or has
greater than 2-to-1 ratio for inactive-to-active participant
counts

Key MPRA changes
Most significant change made by MPRA
allows “critical and declining” status funds to
suspend benefit payments
– “Suspend” means a temporary or permanent
reduction necessary to avoid fund insolvency
– No reductions below 110% of PBGC annual
benefit guarantee (currently $12,870 per year)
Retirees over the age of 80 and disabled
participants are fully protected from benefit
cuts,
– Retirees between the ages of 75 and 80 are
partially protected

Key MPRA changes
Strict rules before fund can reduce benefits, including
extensive approval process overseen by the Treasury
Department
– Participants will be allowed to vote against benefit cuts
– Majority of all participants must vote against cuts to be
effective
– Treasury can override participant rejection vote for
“systemically important” funds – i.e., those large funds that
could require at least $1 billion in PBGC assistance if cuts
are not implemented
PBGC and IRS have both recently requested public
comments on MPRA benefit reduction procedures
– Stay tuned as funds start planning to reduce benefits!

How to evaluate a plan’s funded status
Review latest asset and liability information
– Funded percentage (assets divided by liabilities)
– Asset mixes (stock, debt, real estate, “other”)
Demographics
– Ratio of inactive participants to active participants
– Most funds have more retirees/term vesteds than actives
Number of participating employers
– How many have companies have withdrawn
– Total withdrawal liability assessed
“Burn rate” – is fund collecting more in annual
contributions than it is in paying benefits?
Review health of largest contributing employers

How to evaluate a plan’s funded status
Trends over recent years are also important!
– Change in funded percentage
– Reduction in number of active participants
– Reduction in number of participating employers
– Increases in withdrawal liability estimates
– Changes in plan asset mixes
Comparisons to other funds of similar sizes
and employee populations will also be helpful
for determining potential MPRA impact

Looking into the future…
Perform projections of funded status and
withdrawal liability exposure over the next
5-10 years
Determine whether fund could experience
a “mass withdrawal” of all (or substantially)
all participating employers
Consider retention of pension actuary
through legal counsel to maintain privilege
and coordinate with legal advice
16

Should we withdraw from the fund?
After reviewing funded status of plan,
evaluate other risks associated with
withdrawal from the fund:
– Is a strike, picketing or work stoppage likely?
– Can the company operate a facility if a strike
occurs?
– Can the work be performed at other facilities?
– What alternative retirement plans can the
employer offer to employees?
– What else can employer offer employees in a
collective bargaining agreement to diminish the
likelihood of a strike?
17

Other questions to consider
What effect can the MPRA have on the
funds in which the employer participates?
– Are the trustees likely to utilize some of the
available tools, such as partition and merger?
– What impact would application of new tools
under the MPRA have on the employer’s
withdrawal liability in future years?
18

What Strategies Should Employer Utilize if it
Makes a Determination to Continue to
Participate in a Fund?

Strategies for staying in fund
Make evaluation previously discussed of
present funded status, funded status in
future years, recent trends, and
comparisons to other funds
Consider either a role as a management
trustee or establish regular contacts with
trustees and professionals in the fund
office
20

Encourage trustees to explore options that
will improve funded status, if necessary.
– Is a reduction of benefits necessary to
salvage the fund?
– Is the fund sufficiently large that it is
“systemically significant”?
– Have large employers or numerous smaller
employers recently withdrawn from the
pension fund?
21

Would the funded status of the plan be
improved if the fund partitioned the
“orphaned” employees of withdrawn
employers from the existing fund?
Is there a meaningful merger partner
associated with the same international union
that would allow both funds to become
stronger and reduce overhead?
– What role can the employer play in facilitating
such a process.
22

Use collective bargaining process to
encourage change with fund
– Consider CBA proposals that are contingent upon
improvement of the funded status
– Determine whether additional CBA provisions can
be negotiated to ensure cost certainty and
protections for any future legislative/regulatory
changes
Work with other employers who are
committed to the fund to develop a strategy
to improve the fund’s financial status
23

What Strategies Should an Employer Utilize
if it Makes a Determination to Withdraw from
a Multi-Employer Pension Fund?

Strategies for withdrawal
Evaluate the best time to withdraw from
the fund based on a calculation of the
minimal possible withdrawal liability.
– Use legal counsel and retained actuary for
projections.
– Evaluate the best timing with respect to
contract expiration and collective bargaining
negotiations.
25

Strategies for withdrawal
Determine best practices in the event of a
strike.
– Communicate with union officials and
evaluate their resistance to withdrawal.
– Evaluate the likelihood of a work stoppage.
– Determine whether the facility can continue to
operate.
– Determine whether supplies can be delivered
and product can be sent from the facility.
26

Additional Risk Mitigation Strategies
Evaluate whether union work can be
performed at other facilities or
subcontracted on a profitable basis
Look at alternative retirement plans with
defined contribution benefits that can be
offered to employees
27

Other Polsinelli MPRA Resources
E-Alert: December 17, 2014: Employers Should
Start Preparing Now for Big Changes Coming to
Multiemployer Pension Plans
Podcast: February 9, 2015 - Major Changes to
Multi-Employer Pension Plans
E-Alert: February 10, 2015 - Update Series:
Multiemployer Pension Plans
Polsinelli fixed-fee counseling services - MPRA
Counseling Services

Additional Information
For additional information, please visit us at
www.polsinelli.com to learn more about our
Employee Benefits and Labor Law Practice
Groups, including our suite of fixed-fee
counseling services to help your company
evaluate the MPRA and its potential impact on
your company’s collective bargaining strategies
and other business risks.

About Polsinelli
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seeks constant improvement in all that we do. At its inception more than forty years ago, the firm established a culture
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Polsinelli attorneys successfully build enduring client relationships by providing practical legal counsel infused with
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focuses on healthcare, financial services, real estate, life sciences and technology, and energy and business litigation,
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*The American Lawyer 2013 and 2014 reports
Polsinelli provides this material for informational purposes only. The material provided herein is general and is not intended to be legal advice.
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