Category Archives: multiemployer

Today in ERISA History

Sept. 4, 2009 – The Dept. of Labor issues proposed regulations on Civil Penalties under ERISA section 502(c)(8). ERISA section 502(c)(8) was added by the Pension Protection Act of 2006. It grants authority to the Secretary of Labor to assess civil penalties not to exceed $1,100 per day against any plan sponsor of a multiemployer plan for violating certain sections of ERISA section 305 and Internal Revenue Code section 432. ERISA section 3(37) defines multiemployer plans as plans to which more than one employer contributes and are maintained pursuant to one or more collective bargaining agreements.

ERISA section 305 sets forth time frames in which the plan sponsor of a multiemployer plan must notify participants, beneficiaries, and the bargaining parties, along with the PBGC and Secretary of Labor about the critical or endangered status of the plan.

These regulations explain how the maximum penalty amounts are computed, identifies the circumstances under which a penalty must be assessed, sets forth certain procedural rules for service by the DOL and filing by a plan sponsor, and provides a plan sponsor a means to contest an assessment by the DOL by requesting an administrative hearing.

The DOL received one comment about these proposed regulations, and they were finalized on Feb. 26, 2010. The final regulations on Civil Penalties under ERISA section 502(c)(8) were effective on March 29, 2010.

Today in ERISA History

July 25, 2002 - The Dept. of Labor issues Advisory Opinion 2002-07A, addressing whether the Glass Companies Multiemployer Pension Plan is a multiemployer plan. What makes this Advisory Opinion noteworthy is that within the opinion, the DOL reiterated how the Department applies the 4 factors in Labor Reg. 2510.3-37(c) when determining if a plan is a multiemployer plan.

For a plan to be a multiemployer plan, ERISA section 3(37)(A) required the plan: (1) include more than one employer who was required to contribute plan; (2) the plan is maintained by one or more collective bargaining agreements between one or more employee organizations and more than one employer, and (3) satisfy other requirements imposed by the Secretary of Labor in regulations. One of those other requirements imposed by the Secretary of Labor in regulations was that the plan must be established for a substantial business purpose.

As stated in this Advisory Opinion, the 4 factors considered in determining a “substantial business purpose” are:

    1. the extent to which the plan is maintained by a substantial number of unaffiliated contributing employers and covers a substantial portion of the trade, craft or industry in terms of employees or a substantial number of the employees in the trade, craft or industry in a locality or geographic area;
    2. the extent to which the plan provides benefits more closely related to years of service within the trade, craft or industry rather than with an employer, reflecting the fact that an employee’s relationship with an employer maintaining the plan is generally short-term although service in the trade, craft or industry is generally long-term;
    3. the extent to which collective bargaining takes place on matters other than employee benefit plans between the employee organization and the employers maintaining the plan; and
    4. the extent to which the administrative burden and expense of providing benefits through single employer plans would be greater than through a multiemployer plan.

Once the Dept. of Labor applied these factors to the Glass Companies Multiemployer Pension Plan, the Department found that the plan was not a multiemployer plan because the number of participating employers did not constitute a substantial number of unaffiliated contributing employers, the employee relationships with an employer maintaining the plan are generally short-term, collective bargaining with the employers maintaining the plan is in the context of maintaining single-employer plans and not in the context of a multiemployer plan, and the administrative burden and expense of maintaining single-employer plans is not significantly greater than maintaining a multiemployer plan.

Today in ERISA History

June 18, 1984 – The U.S. Supreme Court releases their opinion in Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717 (1984), holding that the application of the withdrawal liability provisions of the Multiemployer Pension Plan Amendments Act of 1980 to employers withdrawing from pension plans during the 5-month period prior to the statute’s enactment did not violate the Due Process Clause of the 5th Amendment.

R.A. Gray was a building and construction firm doing business in Oregon with collectively-bargained employees who contributed to the Oregon-Washington Carpenters-Employers Pension Trust Fund, a multiemployer pension plan. During Feb. of 1980, Gray decided to terminate their collective bargaining agreement when it expired on June 1, 1980, which was deemed to be a complete withdrawal from the multiemployer pension plan.

When the PBGC was created by ERISA in 1974, it was given the task of paying guaranteed benefits for participants whose plans terminated with insufficient assets. This provision was originally to become mandatory for multiemployer plans on Jan. 1, 1978. The date was extended to July 1, 1979 over concerns that the PBGC would not have sufficient funds to pay the amount of claims which could arise by that date due to the number of plans experiencing extreme financial hardship. Congress eventually passed the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), which President Carter signed into law on Sept. 26, 1980. Effective April 29, 1980 (5 month before it was signed into law), it required an employer withdrawing from a multiemployer pension plan to pay a withdrawal amount equal to the difference between the present value of the plan’s vested benefits and the current value of the plan’s assets.

After Gray was deemed to withdraw from the Oregon-Washington Carpenters-Employers Pension Trust Fund on June 1, 1980, Gray was presented with a withdrawal liability of $201,359. Gray filed a lawsuit in district court seeking relief from paying the withdrawal liability. The district court granted summary judgment in favor of the plan, and Gray appealed to the U.S. Court of Appeals for the 9th Circuit.

The 7th Circuit reversed the district court, finding that the retroactive application of the withdrawal liability violated the Due Process Clause of the 5th Amendment, and the plan and the PBGC appealed to the U.S. Supreme Court.

The Court stated that it was rational for Congress to conclude that the purposes of the MPPAA would be more effective if the withdrawal provisions were applied retroactively because it would prevent employers from attempting to avoid the withdrawal liability by terminating their participation in the plan during the lengthy legislative process, and reversed the 7th Circuit’s decision.

Earlier this year, on March 16, 2012, in Shelter Distribution, Inc. v. General Drivers, Warehousemen & Helpers Local Union No. 89, No. 11-5450 (6th Cir. 2012), the U.S. Court of Appeals for the 6th Circuit cited to Pension Benefit Guaranty Corp. v. R.A. Gray in holding, in a case of first impression, that it is not a violation of public policy for a union to indemnify an employer for any contingent liability incurred due to ERISA and the MPPAA.

Baruch A. Fellner argued before the U.S. Supreme Court on behalf of the plan and the PBGC, with Henry Rose, Mitchell L. Strickler, J. Stephen Caflisch, Peter H. Gould, David F. Power, Nathan Lewin, Seth P. Waxman, William B. Crow, James N. Westwood, William H. Walters, and David S. Paul joining him on the brief.

Thomas M. Triplett argued before the U.S. Supreme Court on behalf of R.A. Gray Co. and filed the brief.

Teamsters Multiemployer Plan Takes Another Hit

Teamsters

    “There is a likelihood that pension fund would become insolvent in 10 to 15 years and I think that us proposing the 401(k) for our employees provides them a better avenue for their retirement.”

Teamsters Local 215 president Chuck Whobrey is quoted as saying “If you believe that then I have some nice ocean front property for you in Arizona.”

According to Susan Orr in Allied Waste Appears on Verge of Locking Out Union Workers, at issue are contributions Allied Waste makes into the Central States Pension Fund multiemployer plan on behalf of 79 members of Teamsters Local 215. Allied Waste says it will pay a $10 million withdrawal penalty when it withdraws from the Central States Pension Fund.

Allied Waste wants to replace the defined benefit plan with a safe harbor 401(k) plan providing matching contributions of 100 percentge of elective contributions up to 3 percent, and 50 percent of the next 2 percent. Allied Waste says its current contribution to the defined benefit plan is $107 per week per participant, and switching to the 401(k) plan will save them money.

The Central States Pension Fund is the largest multiemployer plan in the United States, covering more than 342,000 retirees and their survivors, and 81,000 active employees. On May 27, 2010, the multiemployer plan’s executive director testified before Congress that the plan would be insolvent within 10 to 15 years unless Congress acts to stabilize the fund.

Today in ERISA History

May 4, 1998 – The Pension Benefit Guaranty Corporation (PBGC) issues final regulations on Mergers and Transfers Between Multiemployer Plans, 63 FR 24421. They clarify how the rules are to be applied to plans terminated by mass withdrawal. These final regulations are effective June 3, 1998.

Treas. Reg. 1.414(f)-1(a)(2) defines a multiemployer plan as a plan maintained for the plan year pursuant to one or more collective bargaining agreements between employee representatives and more than one employer.

At the time, ERISA sections 4231(a) and (b) required multiemployer plans to satisfy 4 requirements unless otherwise provided in regulations prescribed by the PBGC:

    1. The PBGC must receive 120 days’ advance notice of the transaction;
    2. Accrued benefits must not be reduced;
    3. There must be no reasonable likelihood that benefits will be suspended as a result of plan insolvency; and
    4. An actuarial valuation of each affected plan must have been performed as prescribed in ERISA section 4231(b)(4).

These regulations are the “unless otherwise provided in regulations prescribed by the PBGC”.

Today in ERISA History

April 5, 2011 – The Dept. of Labor announces Technical Revisions to Actuarial Information on Form 5500 Annual Return/Report for Pension Plans Electing Funding Alternatives Under Pension Relief Act of 2010. The Pension Relief Act, Pub. L. 111-192, 124 Stat. 1280 (2010) was signed into law by President Obama on June 25, 2010. It provided retroactive pension funding relief for single employer and multiemployer defined benefit pension plans, and that funding relief required certain technical revisions to Form 5500 Schedule MB and SB. Without these revisions, the DOL said that accurate and complete Schedules MB and SB could not be filed with respect to plans to which the funding relief applies because complying IRS Notice 2010-83 and Notice 2011-3 required certain information to be included.

Today in ERISA History

April 3, 2008 – The IRS issues Quality Assurance Bulletin FY-2008 No. 1 on Multiemployer Plans: Determination Procedures. It discusses how the IRS treats auxiliary documents, such as collective bargaining agreements, participation agreements, side agreements, and reciprocity agreements, for multiemployer plans who have submitted a determination letter application. It also discusses a variety of issues encountered by multiemployer plans, such as plan language, incorporation by reference, vesting, participation, and nondiscrimination.

Code section 414(f) defines a multiemployer plan as “a plan –

    (A) to which more than one employer is required to contribute,

    (B) which is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer, and

    (C) which satisfies such other requirements as the Secretary of Labor may prescribe by regulation.”

Code section 413(b) describes how certain qualification and other rules apply to collectively bargained plans. Those rules are similar, but separate and distinct from Code section 413(c) which applies to multiple employer plans.

IRS Extends Deadline to June 30th for Multiemployer Plans

Today (April 30th) was the deadline for multiemployer plans to make certain elections described in sections 204 and 205 of the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA). Recognizing that some multiemployer plans need additional time, the IRS issued Notice 2009-42 today, which extends the deadline from April 30, 2009 to June 30, 2009. To avoid confusion in applying this extension, Notice 2009-42 is clear that “June 30, 2009″ is to be substituted for “April 30, 2009″ in Section IV.1 of Notice 2009-31.

Section 204 of WRERA, among other items, generally provides that a multiemployer plan sponsor can elect to temporarily freeze the plan’s section 432 status so that it is the same as the plan’s section 432 status for the plan year immediately prior to the election year. For a multiemployer plan that was in endangered or critical status for the prior year, and for which an election is made under section 204, the plan sponsor is not required to update its funding improvement plan, rehabilitation plan, or schedules as otherwise required under Code sections 432(c)(6) or 432(e)(3)(B) until the plan year following the election year.

Section 205 of WRERA provides for an elective extension of the funding improvement period or rehabilitation period for multiemployer plans in endangered or critical status for a plan year beginning in 2008 or 2009.

Additionally, for multiemployer plans involved in arbitration by June 30, 2009 over making an election under section 204 or 2005 of WRERA, Notice 2009-42 provides this solution:

    “”In addition, if (1) as of the otherwise applicable deadline (i.e., the deadline for a plan as modified by this notice) for making an election under section 204 or 205, a plan sponsor has been uanble to reach agreement as to whether to make the election, so that the decision must be resolved through an arbitration process; (2) the plan sponsor makes an election by the otherwise appplicable deadline that is contingent on the resolution of the arbitration; and (3) the resolution is to not make an election, then the IRS will automatically approve a request to revoke the election.”

With several large multiemployer plans filing lawsuits over their losses due to Madoff, and Chrysler filing Chapter 11 Bankruptcy today, this may just be the tip of the guidance iceburg for endangered multiemployer plans.

[tag]pension protection act, ppa, multiemployer, Notice 2009-42, Notice 2009-31, Chrysler, ERISA[/tag]