Multiemployer Plans

Background

As the Baby Boom generation begins to retire, it is increasingly important to ensure the strength of the private retirement plan system. Millions of retired Americans rely on private pensions and employer-sponsored retirement savings as their most important source of income after Social Security. In an era where life expectancy has increased dramatically, it is more important than ever that policymakers foster the growth of employer-sponsored retirement plans.

Multiemployer plans are defined benefit plans that are maintained by two or more employers and are collectively bargained. Most multiemployer plans are required to have an equal number of employer and union representatives on the Board of Trustees. Due to this unique arrangement, multiemployer plans are often subject to different or additional rules from single employer plans. While only 10% of defined benefit plans are multiemployer plans, these plans cover 25% of all participants in defined benefit plans.

All defined benefit plans, including multiemployer plans, are required to meet minimum funding standards under the Internal Revenue Code. Multiemployer plans, however, are subject to different rules from a single employer plan. To the extent a multiemployer plan does not meet the minimum funding standards, the participating employers must contribute the amount of the insufficiency, obtain a funding waiver, or pay an excise tax. A significant number of multiemployer plans are in danger of failing to meet the minimum funding standards due to many factors including the current economic situation and a shrinking participant base.

After six months of conference negotiations, Congress passed the Pension Protection Act of 2006. The Senate passed by the bill by a vote of 93 – 5 on August 3, 2006 and the House passed the bill by a vote of 279 – 131 on July 28, 2006.The president signed the bill into law on August 17, 2006.The Act creates new provisions for underfunded multiemployer plans and separates them into two broad categories: (1) plans between 65 percent and 80 percent funded are endangered "yellow zone" plans in immediate financial danger; and (2) plans that are less than 65 percent funded are critical "red zone" plans in need of reorganization. The bill requires Trustees of plans in these zones to establish a plan for improving the funded status of the plans and also provides tools (such as prohibiting benefit increases, allowing for increased contributions, and reducing supplemental accrued benefits) to help the Trustees meet their funding goals. S. 1783, the Pension Security and Transparency Act of 2005, restates current funding rules under ERISA for multiemployer plans and creates new provisions for underfunded plans similar to the provisions in H.R. 2830.

In addition, the Deficit Reduction Act of 2005 included increases to PBGC premiums for multiemployer plans. Beginning in 2006, it increases the flat rate premium from $2.60 to $8 per participant and indexes it to wages thereafter.

On April 8, 2004 Congress passed H.R. 3108, the Pension Funding Equity Act of 2004, and the President signed it into law on April 10, 2004. H.R. 3108 included three multiemployer plan provisions. First, H.R. 3108 permits certain eligible multiemployer plans to defer the amortization of 80 percent of their net experience losses in 2002 for up to 2 years. However, regular contributions would not be deferred. Plans that elect this relief cannot increase benefits except for increases required by collective bargaining agreements and increases which will be paid for by increased contributions. Second, H.R. 3108 changed the procedural rules for the determination of withdrawal liability for companies that are under common control. If a plan spins-off a company in a transaction that took place prior to 1999 and more than five years before the date of the spun-off company's withdrawal from a multiemployer plan, then (1) the burden of proof shifts from the controlled group to the plan administrator and (2) the controlled group is not responsible for any withdrawal liability payments until a final decision is made in arbitration or litigation. Third, H.R. 3108 added permanent notice requirements for multiemployer plans to give participants and contributing employers information on the plan's funding level, asset level, ramifications of underfunding, and guaranteed benefits under the plan.

U.S. Chamber Position

The Chamber supports the multiemployer reforms in the Pension Protection Act of 2006 as vital and necessary to the maintenance of the multiemployer plan system.

Testimony for Record, technical corrections— May 17, 2007 (PDF)

QDRO Regulation, Comments— May 7, 2007 (PDF)

Technical Explanation of H.R. 4 by the Joint Committee on Taxation — August 3, 2006 (PDF)

H.R. 4 - "The Pension Protection Act of 2006" — July 28, 2006 (PDF)

Pension Reform Letter sent to Senate Conferees — May 31, 2006 (PDF)

Pension Reform Letter sent to House Conferees — May 31, 2006 (PDF)

Multiemployer Reform Letter Sent to House and Senate — May 5, 2006 (PDF)

Multiemployer Pension Plan Coalition Letter — December 1, 2005 (PDF)

Letter Urging Consideration of Pension Reform Bill — November 30, 2005 (PDF)

Letter Urging Consideration of S. 1783 — November 16, 2005 (PDF)

Letter to Senate re: PBGC Premiums — November 3, 2005 (PDF)

Letter for the Record - Hearing on Hybrid Plans and Multiemployer Plans — June 7, 2005 (PDF)