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Multiemployer plans

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Who Will Pay Benefits of Bankrupt Multiemployer Plans?
"Multiemployer (union) plans, for a variety of reasons, will all go bankrupt. So what happens to promised benefits? The Road Carriers Local 707 Pension Fund (RC707) ... is one of five multiemployer plans looking to suspend benefits under MPRA. Their application asserts that 'the plan is projected to be insolvent by February, 2017' so they are proposing to 'reduce all of the Plan participants' pension benefits to 110 percent of the PBGC guarantee' ... The most instructive chart from the 8/31/14 valuation report is the asset history[.]" (Burypensions)
[Official Guidance] Treasury Department Notice: Teamsters Local 469's Multiemployer Pension Plan Application to Reduce Benefits
"The Board of Trustees of the Teamsters Local Union No. 469 Pension Plan, a multiemployer pension plan, has submitted an application to Treasury to reduce benefits under the plan in accordance with the Multiemployer Pension Reform Act of 2014 (MPRA). The purpose of this notice is to announce that the application submitted by the Board of Trustees of the Teamsters Local 469 Pension Plan has been published on the Treasury website, and to request public comments on the application from interested parties, including contributing employers, employee organizations, and participants and beneficiaries of the Teamsters Local 469 Pension Plan. Comments must be received by June 22, 2016." (U.S. Treasury Department)
Tenth Circuit Expands Withdrawal Liability of Construction Industry Employer
"Unionized construction employers should now closely scrutinize acquisitions within jurisdictions where the employer had previously contributed to a [multiemployer plan]: non-contributory work performed by an after-acquired entity will (at least within Oklahoma, Kansas, New Mexico, Colorado, Wyoming, and Utah) likely trigger withdrawal liability." [Ceco Concrete Construction, LLC v. Centennial State Carpenters Pension Trust, Nos. 15-1021, 15-1190 (10th Cir. May 3, 2016)] (Jackson Lewis P.C.)
`Zombie' Pension Plans Need Autopsies
"For retirees of Central States and other plans facing insolvency, a forensic investigation may be more productive and more likely to succeed than lobbying Congress ... If wrongdoing is found, those responsible can be made to compensate the fund for the damages they caused ... [F]und's participants could easily raise the money to hire an independent investigator through crowd sourcing or other means." (Bloomberg BNA)
Treasury Denies Central States; How Will Other Multiemployer Plans Fare?
"If the Department of the Treasury will not approve benefit suspensions under the Multitemployer Pension Reform Act (MPRA) for participants in the Central States Pension Fund then how will other multiemployer plans lined up for approvals fare? ... [This article includes links to] the latest 5500 forms for all five plans in the pipeline ... A spreadsheet comparison shows all the plans similarly situated as to depletion dates[.]" (Burypensions)
Treasury's Reasoning for Rejecting Central States Suspension Application is Misunderstood
"Many commentators ... have stated that the Treasury believes a 7.5% interest rate is not a reasonable actuarial assumption for funding a pension plan. The reasoning related to the 7.5% interest rate was much more specific ... Treasury did not say that a 7.5% investment return assumption was inappropriate for purposes of determining a plan's minimum funding requirements (or for funding a public pension plan over the long term). Instead, Treasury recognized because of Central States's specific situation (with negative cash flow), there needed to be a focus on the near term when testing whether the Plan could avoid insolvency." (Cheiron)
Failing Central States Pension Fund Is Out of Options
" 'The fact that the ... PBGC is also running out of money means our participants may see their pension benefits ultimately reduced to virtually nothing when the fund runs out of money,' [fund director Thomas Nyhan said in a letter to workers and retirees]. Only government funding, either to the Central States Fund directly or through the PBGC, can fix the problem, he said." (
Central States Pension Fund Drops Efforts to Create Second Bailout Plan
"The decision ... to drop efforts of a second rescue-package submission means the fate of the cash-strapped $16.8 billion multiemployer plan sits with federal lawmakers. Absent a congressional bailout, ... [the plan] will run out of cash by the end of 2025, said Thomas Nyhan, the group's executive director. Mr. Nyhan said ... that there wasn't enough time to resubmit a plan without cutting retiree benefits deeper than is legally allowed." (The Wall Street Journal; subscription may be required)
Crash Landing for Central States
"Treasury opined that the estimated 10-year average rate of return should have been 6.43% reflective of the Horizon Survey of investment forecasts. However, adoption of that rate would have resulted in even deeper reductions in core benefits to participants. Significantly, a review of several other multi-employer funds reveals that an investment return assumption of 7.50% is not uncommon. Based on Treasury's 'scrutiny,' it seems probable that the other pending applications will suffer a similar fate to Central States." (Jackson Lewis P.C.)
[Opinion] There's No 'Tooth Fairy' for Pension Fund Bailout
"Anger predictably ensued when Central States administrators proposed cuts for 270,000 drivers and retirees as part of their rescue plan.... But the Treasury Department rejected the Central States restructuring and benefit cuts.... The reality, however, is that rejecting the least bad option simply means that the other solutions are worse. The plan's dire finances have not changed. And without reform, pensioners' cuts eventually may be even deeper.... The debate going forward needs to honestly acknowledge the long odds of a congressional bailout for the Central States fund and what can realistically be done to preserve pensions." (StarTribune)
It's Back to the Drawing Board for Multiemployer Pension Reform
"Sweeping solutions are not expected in an election year, particularly one that could change the balance of power in Congress. MPRA critics, including the Pension Rights Center in Washington and AARP, realize their victory in the Central States decision is short-lived, as many troubled multiemployer plans head toward insolvency, along with the Pension Benefit Guaranty Corp.'s multiemployer insurance program itself." (Pensions & Investments)
PBGC to Double Penalties for Failing to Give Notices
"[T]he new maximum amount for noncompliance with the Section 4071 requirements will nearly double, from the current $1,100-per-day penalty to $2,063. The penalty under ERISA Section 4302 will increase from $110 per day to a $275 daily assessment.... A PBGC official ... [said] on May 12 that these penalties are rarely assessed." (Bloomberg BNA)
Threatened Pensions Safe -- for Now
"The Central States decision forestalls pension cuts that would have taken effect this summer, but it does not resolve the problem. Plan administrators say it could be insolvent within a decade.... But the Treasury decision does not settle the matter. The plan could still refile its application to make cuts.... The Obama administration's 2017 budget proposes to solve the problem by raising $15 billion in higher [PBGC] premiums for multiemployer plans, and by giving PBGC the power to set rates without congressional approval." (Mark Miller, via Reuters)
Treasury's Ruling Raises Question of Rescue Plan Process
"[Central States Pension Fund executive director Thomas C. Nyhan said] that although the fund's dealings with Treasury during the review wasn't 'an adversarial process,' it wasn't 'collaborative, either.' He said that despite meeting with Treasury three times and providing the department and the Pension Benefit Guaranty Corporation with 'massive amounts of actuarial data over the many months of their deliberations,' Treasury never told the fund about the department's concerns before the decision." (Bloomberg BNA)
Multiemployer Plan Conundrum: Are Composite Plans the Answer?
"A hypothetical composite multiemployer pension plan could survive severe economic stress through a combination of contribution increases and benefit reductions ... The plan was presumed to be 100 percent funded in 2016, falling to 73 percent funded in 2017 as a consequence of the severe shocks similar to those that defined benefit plans experienced in 2008-2009, and projected to be at 60 percent funding in 15 years.... The analysis found that either of two possible realignment programs would increase the hypothetical plan's funding to 121 percent in 15 years -- slightly above the 120 percent funding requirement." (Bloomberg BNA)
Central States: Rescue Petition Denial Faulty, Avoidable
"Thomas C. Nyhan, executive director and general counsel of the [Central States Pension Fund], challenged the [Treasury] department's conclusions that the multiemployer pension plan's proposal wasn't based on 'reasonable investment assumptions' and that its notices to participants weren't 'understandable to the average plan participant.'... The fund surveyed its participants and found that 73 percent of those responding said the information in the notices was 'clear and easy to understand,' he said. Nyhan said if 'Treasury had told us that they considered the notice to be unsatisfactory, we would have gladly mailed out a revised notice. It clearly didn't take Treasury 224 days to come to that conclusion.' " (Bloomberg BNA)
Pension Plan Funded Status Drops Due to Interest Rate Declines in Q1 2016 (PDF)
"During the first quarter of 2016, the funded status of the model pension plan ... decreased by 4 percentage points: from 83 percent to 79 percent. This decline was the result of a 3 percent asset increase and a 9 percent liability increase during the quarter ... The decrease in the yield curve level during Q1 2016 resulted in a decline in the effective interest rate and, consequently, increased the model pension plan's liability by about 9 percent." (Sibson Consulting)
Treasury Department Letter to Congress on Its Rejection of Central States Application to Reduce Benefits (PDF)
"The Central States plan ... remains severely underfunded and is projected to become insolvent within the next 10 years.... [A]bsent congressional action, by the time the Central States plan becomes insolvent, the [PBGC] multiemployer insurance fund -- which insures part of those benefits -- may itself already be insolvent.... We urge Congress to consider carefully the issues that have emerged ... Finding a balanced solution will require painful choices, but we must work together to preserve the promise of retirement security that these workers have bargained for and earned." (U.S. Department of the Treasury, via Pension Rights Center)
Treasury Special Master Rejects Central States' Plan for Pension Cutbacks
"The decision could dim the chances for multiemployer pension funds to avoid insolvency by slashing benefits. Central States projects that, without the cuts, it will be out of funds by 2026 because it's currently paying out $3.46 for every $1 it takes in. Even under the plan, the fund gave itself a coin-flip's chance of surviving past 2064, according to its proposal." (Bloomberg)
Treasury Rejects Central States Benefit Reductions
"Central States' proposed benefit suspensions 'are not reasonably estimated to allow the plan to avoid insolvency,' Mr. Feinberg said, because Treasury officials considered the plan's 7.5% rate of investment return and entry age assumptions to be unreasonable.... At the time of its application, [the Central States plan] was 53% funded, with $35 billion in liabilities.... If Treasury had approved the application, an estimated two-thirds of the plan's 400,000 participants would have seen their benefits reduced, with nearly 40% seeing cuts of 30% or higher[.]" (Pensions & Investments)
[Opinion] Statement by Central States Pension Fund Regarding Treasury Department's Denial of Proposed Rescue Plan
"Although the decision by our Trustees to file this application under provisions of the Multiemployer Pension Reform Act of 2014 (MPRA) was gut wrenching, we are disappointed with Treasury's decision, as we believe the rescue plan provided the only realistic solution to avoiding insolvency. The Central States Pension Fund Trustees will carefully consider the most appropriate next steps, based on this denial and the final guidance issued by Treasury on April 26." (Central States Pension Fund)
[Opinion] Central States Benefit Reductions Are Probably Inevitable
"The only question is whether the trustees decide to fire themselves and the people now servicing the plan by going directly to the [PBGC] under a distress termination which would require maximum benefit cuts for participants and a lot of work for the PBGC ... or resubmit the application with a later suspension date and bigger benefit cuts that will likely come close to PBGC maximum limits." (Burypensions)
[Official Guidance] Text of Treasury Department Letter to Central States Pension Plan Denying Application to Reduce Benefits Under MPRA (PDF)
10 pages. "As Special Master, appointed by the Secretary, I am writing to notify you of Treasury's decision to deny the Application because the suspension fails to satisfy the statutory criteria for approval of benefit suspensions.... [A] key test for any application under Kline-Miller is whether the proposed benefit suspensions take a plan off the path to insolvency. As described further [in this letter], Treasury finds that the Plan's proposed benefit suspensions are not reasonably estimated to allow the Plan to avoid insolvency.

"Specifically, after reviewing the Application and consulting with PBGC and DOL, Treasury has determined that the suspensions described in the Application fail to satisfy the following three requirements set forth in Kline-Miller:

  • that the proposed benefit suspensions, in the aggregate, be reasonably estimated to achieve, but not materially exceed, the level that is necessary to avoid insolvency, because the investment return and entry age assumptions used for this purpose are not reasonable....
  • that the proposed benefit suspensions be equitably distributed across the participant and beneficiary population....
  • that the notices of proposed benefit suspensions be written so as to be understood by the average plan participant."

(U.S. Department of the Treasury)
$20 Billion Underfunding of Central States Pension Plan May Tie Treasury Department's Hands on MPRA Benefit Suspensions
"In Central States' case, it may not even matter if the participants are in the majority against [the benefit suspension plan].... [MPRA] requires Treasury to determine if the plan in question is a 'systemically important plan' ... one that, absent MPRA suspensions, would be estimated to require more than $1 billion in assistance from the PBGC to support retiree benefits at guarantee levels as a result of the plan's insolvency. Central States is believed to be such a plan. In this case, Treasury would override the participants' vote and implement the suspensions anyway, although it could modify the terms[.]" (Milliman)
Neither DB nor DC: The Composite Plan (PDF)
"Congress may soon consider legislation for a new type of shared-risk multiemployer retirement plan known as a Composite Plan. This design was initially proposed in the NCCMP 2013 Retirement Security Review Commission Report, Solutions not Bailouts... [This article] summarizes key points of the Composite Plan design.... [and] provides an illustration of the ability of a Composite Plan to recover from a severe shock, based on timely, aggressive plan trustee management. Such action would be required under the proposal -- even for a very mature plan, where shocks are more difficult to absorb." (Segal Consulting)
Construction Company Can't Avoid Pension Withdrawal Liability by Acquiring Nonunion Business, Resuming Work
"A multiemployer pension plan was authorized to assess withdrawal liability against a construction company whose parent company soon purchased a nonunion construction company that performed the same type of work for which pension contributions had been made ... [The Tenth Circuit ruled that to hold] otherwise would mean that a construction company could avoid withdrawal liability by terminating its obligation to contribute to a pension fund and then acquiring a nonunion business that resumed the covered work[.]" [Ceco Concrete  v. Centennial State Carpenters Pension Trust, No. 15-1021 (10th Cir. May 3, 2016] (Wolters Kluwer Law & Business)
IRS Rule Turns Away UPS Bid for Benefit Cut Changes
"According to the rules, a multiemployer plan looking to reduce benefits would first have to cut them to the maximum extent permissible for retirees with employers that withdrew from the plan without paying the full withdrawal liability, or in Tier 1. Retirees with employers with make-whole agreements (Tier 3) could face cuts, but they would have to be equal to or less than decreases for all other plan participants (Tier 2).... The rules didn't mention UPS by name, but address its make-whole agreement after it left the Central States fund in 2007 ... UPS [had] argued in written comments and at a hearing that benefits in tiers 1 and 2 would have to be cut to the maximum extent possible before those benefits in Tier 3 could be cut." (Bloomberg BNA)
[Official Guidance] Text of IRS Final Regs: Additional Limitation on Suspension of Benefits Applicable to Certain Pension Plans Under MPRA
19 pages. "One specific limitation governs the application of a suspension of benefits under any plan that includes benefits directly attributable to a participant's service with any employer that has withdrawn from the plan in a complete withdrawal, paid its full withdrawal liability, and, pursuant to a collective bargaining agreement, assumed liability for providing benefits to participants and beneficiaries equal to any benefits for such participants and beneficiaries reduced as a result of the financial status of the plan. This document contains final regulations that provide guidance relating to this specific limitation. These regulations affect active, retired, and deferred vested participants and beneficiaries under any such multiemployer plan in critical and declining status as well as employers contributing to, and sponsors and administrators of, those plans." (Internal Revenue Service [IRS])
[Guidance Overview] Treasury Finalizes Multiemployer Benefit Suspension Regulations (PDF)
"[T]he final rule: ...[C]larifies that individual-level contingencies (such as retirement) can be considered for those who had not started benefits before the effective date of the suspension.... [Adds] a floor of 2 percent of the periodic payment determined before the proposed reduction ... Details the steps that must be taken to locate participants whose notices are returned as undeliverable ... The final regulation also adds a new rule that, in appropriate circumstances ... allows a plan sponsor that has withdrawn an application to submit a revised application for suspension that will be subject to a different review process." (Xerox HR Services)
[Opinion] Before Teamsters Negotiate Benefit Cuts, They Should Investigate Reason for Pension Plan Failures
"We, as a nation, have the resources to forensically investigate the reasons pensions fail to provide retirement benefits promised workers. To date, despite the widespread failures, no one seems to care. Forensic investigations of failed plans will both improve the management of existing pensions, as well as signal to Wall Street and other wrongdoers that those who contribute to the demise of a pension will be held accountable." (Edward Siedle, in Forbes)
Kroger, UPS Challenge Central States Reduction Plan
"Current and former plan participants of Kroger Co., Cincinnati, last week sued the $17.8 billion Teamsters Central States over the rescue plan.... The Teamsters union [had] negotiated a proposal to remove Kroger participants from Central States and create a new plan for Kroger employees, with the company agreeing to absorb the increased withdrawal liability, according to the federal court complaint. Because Central States trustees 'flatly refused to consider' after deliberating for just five days, the plaintiffs are asking the court to order reconsideration of the proposal, to appoint an independent fiduciary to judge the idea and to negotiate an arrangement with Kroger." (Pensions & Investments)
UPS Warns of $3.8 Billion Cost If U.S. Backs Pension Benefit Cut
"The cost would be triggered if the U.S. Treasury Department approves benefit cuts to protect the solvency of the Central States Pension Fund, UPS executives said Thursday. UPS pulled out of the fund in 2007 but agreed to make up any losses its remaining members experienced. The world's largest package-delivery company may have to record a charge of $3.2 billion to $3.8 billion if the government approves the benefit cuts, executives said in an earnings conference call. UPS plans to oppose such a move by the Treasury." (Bloomberg)
Treasury Issues Final MPRA Suspension Regulations
"The final regulations make changes and clarifications to many specific provisions of the proposed regulations. Examples include: [1] Addressing numerous actuarial assumption and projection issues; [2] Clarifying that the plan must pay for actuarial, legal, and communication expenses of the retiree representative; [3] Adopting a new procedure permitting trustees, with the Treasury's approval, to withdraw and resubmit a revised suspension application; [4] Adding new procedural requirements for the participant vote. The final regulations do not change the statutory requirement that those who do not vote are counted as voting in support of a suspension." (Segal Consulting)
Senate Democrats Urge Scrutiny of Central States Rescue Plan (PDF)
"The entire Democratic Party Senate caucus has urged the Treasury Department to closely scrutinize the Central States pension fund's rescue proposal.... The senators wrote that the fund's retirees 'contributed to their pensions over the course of many years -- making the sacrifices of giving up better pay or improved benefits, or even staying in a physically exhausting job that took them away from their families -- so they could earn a pension that they believed could never be taken away.' " (BNA Pension & Benefits Reporter, via Pension Rights Center)
Kroger Workers, Retirees Sue Failing Multiemployer Pension Fund, Trustees
"A group of participants in the Central States Pension Fund is suing the fund, its administrators and trustees for breach of fiduciary duty. The move follows a nationwide movement of retirees who have taken to protesting the troubled fund, which is set to run out of money in 2026. The plaintiffs are current and retired warehouse workers at Kroger Co., hailing from Michigan, Illinois and Kansas, whose retirement funds are invested in the Rosemont, Illinois-based Central States Pension Fund." (
[Official Guidance] Text of IRS Final Regs: Suspension of Benefits Under the Multiemployer Pension Reform Act of 2014
133 pages. ""The preamble to the June 2015 temporary regulations states that it is expected that no application proposing a benefit suspension will be approved prior to the issuance of final regulations, and that, if a plan sponsor chooses to submit an application for approval of a proposed benefit suspension before the issuance of final regulations, then the plan sponsor may need to revise the proposed suspension (and potentially the related notices to plan participants) or supplement the application to take into account any differences in the final regulations ... [T]he provisions of the June 2015 proposed regulations and the September 2015 proposed regulations ... are adopted by this Treasury decision, subject to certain changes ... This Treasury decision also removes the temporary regulations under 432(e)(9) that were published in June 2015 and September 2015. This Treasury decision does not contain final action on the February 2016 regulations....

"[T]the final regulations clarify that a suspension can take into account individual-level contingencies (such as retirement, death, or disability) for individuals who have not commenced benefits before the effective date of the suspension.... These final regulations define the term plan sponsor to mean the association, committee, joint board of trustees, or other similar group of representatives of the parties that establishes or maintains the multiemployer plan. However, in the case of a plan described in section 404(c), or a continuation of such a plan, the term plan sponsor means the association of employers that is the employer settlor of the plan ...

"The final regulations implement the requirement that a retiree representative must be selected for a plan with 10,000 or more participants. For purposes of determining whether a plan has 10,000 or more participants, the final regulations provide that the number of participants is the number reported on the most recently filed Form 5500... The final regulations also provide that the plan sponsor must select the retiree representative at least 60 days before the plan sponsor submits an application to suspend benefits and that the retiree representative must be a plan participant who is in pay status and may or may not be a plan trustee.... The final regulations require that, upon request, the plan sponsor must promptly provide the retiree representative with relevant information (such as plan documents and data) that is reasonably necessary to enable the retiree representative to perform the retiree representative's role, which includes, for example, the retiree representative's attendance at trustee meetings at which the suspension design is being developed.... The final regulations clarify that the plan must pay other reasonable expenses incurred by the retiree representative, such as any reasonable expenses incurred in communicating with the retired and deferred vested participants and beneficiaries of the plan about the proposed suspension ...

"Under the final regulations, a plan sponsor may not suspend benefits unless the plan sponsor makes initial and annual determinations that the plan is projected to become insolvent unless benefits are suspended, although all reasonable measures to avoid insolvency have been taken. These determinations are based on the non-exclusive list of factors described in section 432(e)(9)(C)(ii).... The final regulations provide that the plan sponsor must maintain a written record of its annual determinations in order to satisfy the annual plan sponsor determinations requirement....

"The final regulations contain new rules to clarify when different groups of participants and beneficiaries are treated as separate categories or groups for purposes of applying the equitable distribution requirement in the case of a proposed suspension of benefits under which an individual's benefits after suspension are calculated under a new benefit formula (rather than by reference to an individual's benefits before suspension)....

"The final regulations prescribe rules implementing the statutory notice requirements in section 432(e)(9)(F) that are generally the same as the rules set forth in the 2015 regulations.... The final regulations generally adopt the provisions of the 2015 regulations under which the plan sponsor of a plan in critical and declining status for a plan year that seeks to suspend benefits must submit an application for approval of the proposed suspension of benefits to the Treasury Department.... The final regulations provide that a complete application will be deemed approved unless, within 225 days after a complete application is received, the Treasury Department notifies the plan sponsor that its application does not satisfy one or more of the requirements for approval.... An application must be submitted electronically in a searchable format. The final regulations provide that, after receiving a submission, the plan sponsor will be notified within two business days whether the submission constitutes a complete application....

"The final regulations provide that, in any case in which a suspension of benefits with respect to a plan is made in combination with a partition of the plan under section 4233 of ERISA, the suspension of benefits is not permitted to take effect prior to the effective date of the partition....

[T]hese final regulations clarify that eligible voters include terminated vested participants and retirees (but not alternate payees).... These final regulations set forth rules regarding the ballot package that is sent to eligible voters and the plan sponsor's responsibilities relating to ballots and related communications to participants and beneficiaries....

These regulations are effective on [April 28, 2016, the date they are to be published in the Federal Register]."

(Internal Revenue Service [IRS])

[Official Guidance] Text of IRS Rev. Proc 2016-27: Application Procedures for Approval of Benefit Suspensions for Certain Multiemployer Defined Benefit Pension Plans Under Section 432(e)(9) (PDF)
32 pages. "This revenue procedure contains revised procedures for applications for a suspension of benefits under a multiemployer defined benefit pension plan that is in critical and declining status under Section 432(e)(9). These procedures replace the procedures set forth in Rev. Proc. 2015- 34, 2015- 27 I.R.B. 1218.

"The procedures set forth in this revenue procedure must be followed for applications submitted on or after April 26, 2016....

"The model notice in Appendix A of this revenue procedure replaces the model notice attached to Rev. Proc. 2015-34 for notices with respect to applications submitted under this revenue procedure.... As noted in Rev. Proc. 2015-34, plan sponsors that submit an application under that revenue procedure may need to revise the proposed suspension or supplement the application to take into account the final regulations and this revenue procedure."

(Internal Revenue Service [IRS])

[Official Guidance] Text of Treasury Department Announcement of Multiemployer Pension Plan Application to Reduce Benefits
"The Board of Trustees of the Iron Workers Local Union 16 Pension Fund, a multiemployer pension plan, has submitted an application to Treasury to reduce benefits under the plan in accordance with the Multiemployer Pension Reform Act of 2014 (MPRA). The purpose of this notice is to announce that the application ... has been published on the website of the Department of the Treasury ... and to request public comments on the application from interested parties, including contributing employers, employee organizations, and participants and beneficiaries of the Iron Workers Local Union 16 Pension Fund. Comments must be received by June 9, 2016." (U.S. Department of the Treasury)
Iron Workers Local 16 Pension Fund Application for Benefit Suspension
"The Iron Workers Local Union 16 Pension Fund application proposing benefit suspensions [the full text of which is available at the linked page] ... is currently being reviewed and the review is expected to take several months. IW Local 16's representative has advised [Treasury] that individualized participant notices were sent via first class mail at end of March 2016." (U.S. Department of the Treasury)
Sun Capital Decision May Affect Structuring of Private Investment Funds
"Although the Sun Capital decision was limited to multiemployer pension plan liability, and was likely motivated in part by policy considerations unique to multiemployer pension plans, the legal principles ... may extend to other pension liability (e.g., unfunded liability under a traditional defined benefit pension plan), as well as the application of the coverage and discrimination rules applicable to 401(k) and other defined contribution plans that are dependent upon 'controlled group' status." (Goodwin Procter)
[Guidance Overview] 2015 Annual Funding Notice: PBGC Filing Information
"Multiemployer plans may continue to file the 2015 AFN and other notices -- 'zone' notices, PBGC notices for plans 'avoiding yellow' or 'not electing early red' as added by the Multiemployer Pension Reform Act of 2014, and notices of amortization extension applications under Section 431 of the Internal Revenue Code (together, Other Notices) -- by e-mail ... or mail ... Alternatively, multiemployer plans may, but are not required to, file the AFNs and Other Notices with PBGC through the new e-filing portal, launched by the PBGC in December of last year." (Segal Consulting)
Multiemployer Pension Funding Study: Spring 2016 (PDF)
"The aggregate funded percentage for multiemployer plans is estimated to be 75% as of December 31, 2015, compared with 79% as of June 30, 2015. For most multiemployer pension plans, estimated 2015 investment experience was flat or slightly negative, far below expected returns. Over one-half of the total underfunding for multiemployer plans continues to be attributable to plans that are less than 65% funded. Of the nearly 200 critical plans with 2014 information available, about 40% are projected to be insolvent at some point." (Milliman)
Central States Teamsters Pension Fund Returns -0.81% in 2015
"For the three years ended Dec. 31, the ... pension fund, whose assets totaled $16.1 billion as of Dec. 31, returned an annualized 8.06% ... Northern Trust Asset Management, which is named as fiduciary of the pension fund and oversees 50% of the fund's assets in an active management style, reported ... [an] equity composite return [of] -2.73%, outperforming its -3.04% custom benchmark return, while Northern Trust's fixed-income composite return was -4.49%, underperforming its -3.4% custom benchmark return." (Pensions & Investments)
[Opinion] Karen Friedman's Speech to the Protect Our Pensions Rally (April 14, 2016)
"[T]he Treasury Department has good reason to REJECT the Central States application because it flunks every condition required under the law. The application unfairly distributes benefit cuts, and most important, the cuts won't save the plan. The Treasury Department should JUST SAY NO." (Pension Rights Center)
Retirees Rally at the Capitol, Protesting Pension Cuts
"Some 400,000 retirees who worked in the trucking, parcel delivery and grocery supply industries face drastic pension cuts on July 1... [T]he outrage focused on the seeming lack of political will from Congress to rescue a pension plan that had promised retirement benefits to middle-class workers, even when the same Congress was willing to bail out major financial institutions during the 2008 financial crisis. The workers blamed some of the same Wall Street banks that needed bailouts for the poor investment decisions that sent the Central States Pension Fund hurtling toward insolvency." (The New York Times; subscription may be required)
Pension Plan Withdrawal Liability Imposed on Investor Private Equity Funds
"[P]rivate equity funds may want to ... [1] avoid multiple co-investments with the same fund entities, [2] limit the investment administration and managerial rights granted to the fund entities, [3] avoid substantively identical governing documents for co-investing funds, [4] have the funds co-invest with different outside entities and [5] seek outside funds with independent ownership and management to become minority owners in a portfolio company.... Most significantly, private equity funds will want to be especially aware of any unfunded pension liability that a potential portfolio company may have." [Sun Capital Partners III, LP, et al. v. New England Teamsters & Trucking Industry Pension Fund, No. 10-10921 (D. Mass. Mar. 28, 2016)] (Holland & Knight)
Sun Capital: An Opportunity to Consider Fund Tax Structures (PDF)
"The court chose to look beyond the 'organizational formalities' employed by the funds and to assert that ... state law forms cannot be elevated over substance when it comes to analyses under ERISA.... The Sun Capital court's 'common control' analysis is interesting in that it amounts to what is essentially a conclusion under the tax law regarding a de facto partnership; yet, the case is not a tax case, the [IRS] is not a party and there is no reason to believe the IRS has ever or will ever assert a partnership-in-fact under these facts." (King & Spalding)
Private Equity Funds, Controlled Groups, and Multi-Employer Plan Withdrawal Liability
"Sun Capital upends much of the conventional wisdom about private equity investments in portfolio companies with multi-employer pension exposure. While it's too soon to know for certain, this could prove to be a seminal case for private equity investments with consequences in areas far removed from pension liability." (Mintz Levin)
2013 PBGC Data Tables: Multiemployer Supplement (PDF)
10 charts illustrate Zone Status over Time (Participant); Zone Status over Time (Plans); Direction of Zone Status Changes; Zone Status and Tests for Declining Status; and Administrative Expenses (across various parameters). (Pension Benefit Guaranty Corporation [PBGC])
DB Pension Plans: Hungry Octopus Just Took a $4.5 Million Bite Out of Private Equity
"This decision ... raises significant concern about whether this rationale will be adopted by other jurisdictions, and how far fund multiemployer plan trustees and the courts will go to find prey to feed a multiemployer plan when a participating employer cannot satisfy its withdrawal liability. Further, given that the PBGC regulation also applies to single employer pension plans, this decision raises concern about how the PBGC might react to this decision, and how far the PBGC may go to seek prey for underfunded single employer pension plans it has taken over." [Sun Capital Partners III, LP, et al. v. New England Teamsters & Trucking Industry Pension Fund, No. 10-10921 (D. Mass. Mar. 28, 2016)] (Tucker Ellis LLP)
[Guidance Overview] 2016 Key Administrative Dates and Deadlines for Calendar-Year Multiemployer Defined Benefit Plans (PDF)
Detailed 3-page chart of notice and reporting requirements and their deadlines. (Milliman)
ERISA's Two-Pronged Test for Pension Plan Withdrawal Liability
"Two key questions drive the court's determination of whether a private equity fund will be saddled with the ERISA pension liability of a bankrupt portfolio company: [1] whether the fund is engaged in a 'trade or business'; and [2] whether the fund is under 'common control' with or has a 'controlling interest' of at least 80% in the portfolio company." [Sun Capital Partners III, LP, et al. v. New England Teamsters & Trucking Industry Pension Fund, No. 10-10921 (D. Mass. Mar. 28, 2016)] (Winston & Strawn, LLP)
PBGC Reports Multiemployer Program Likely to Be Insolvent in 10 Years Without Large Premium Increases
"The multiemployer insurance program's deficit stood at $42.4 billion as of September 30, 2014, with assets of only $1.8 billion compared to liabilities of $44.2 billion.... [PBGC] found a greater than 50% chance that it would run out of money by 2025 and a 91% chance that it would run out of money by 2032. This is the result even if failing plans reduce benefits to the fullest extent allowed by MPRA." (Cheiron)
District Court Holds That Private Equity Funds Were Part of Same Controlled Group for Purposes of Pension Liability
"Should this decision be upheld or followed by other courts, it would reshape existing practice in the private equity industry. Investors would no longer be able to rely on the corporate organizational form to ensure that no controlled group exists for purposes of pension liabilities. Rather, each investment would need to be analyzed to determine whether there exists an identity of interest and unity in decision-making amongst the various investors sufficient to give rise to a partnership-in-fact under the nebulous factors articulated by the court." [Sun Capital Partners III, LP, et al. v. New England Teamsters & Trucking Industry Pension Fund, No. 10-10921 (D. Mass. Mar. 28, 2016)] (Winston & Strawn LLP)
Court Ruling Signals Potential ERISA Liability for Private Equity Fund Sponsors (PDF)
"The district court's application of the First Circuit's new 'investment plus' standard is a noteworthy and potentially troubling development for PE sponsors ... The court's allusion to 'the larger ecosystem of Sun Capital entities' in the course of its analysis suggests a potentially expansive view of the 'investment plus' standard, one that could have a significant impact on PE fund operations, particularly if applied beyond the First Circuit." [Sun Capital Partners III, LP, et al. v. New England Teamsters & Trucking Industry Pension Fund, No. 10-10921 (D. Mass. Mar. 28, 2016)] (Skadden, Arps, Slate, Meagher & Flom LLP)
Text of PBGC Report to Congress: Multiemployer Fund Likely to Be Exhausted by 2025 (PDF)
"PBGC projects that current premiums ultimately will be inadequate to maintain benefit guarantee levels.... The multiemployer program had a net deficit of $42.4 billion as of the end of FY 2014, the result of liabilities of $44.2 billion and assets of $1.8 billion....

"[There is more than a 40 percent likelihood that the assets of PBGC's multiemployer insurance program will be exhausted by 2024 (43% if no plans elect to suspend or partition, 41% using best estimate assumptions of future suspensions and partitions) and over a 90 percent likelihood of exhaustion by the end of the projection period (93% if no plans elect to suspend or partition, 92% using best estimate assumptions of future suspensions and partitions).

"It is more likely than not that PBGC's multiemployer fund will be exhausted by 2025, whether or not plans make use of suspension and partition."

(Pension Benefit Guaranty Corporation [PBGC])
Fate of 400,000 Teamster Pensions Rests in Ken Feinberg's Hands
"[Special Master Kenneth Feinberg], 70, who also helped adjudicate claims in the Deepwater Horizon oil spill disaster and will soon oversee a fund to compensate victims of state-sponsored terrorism, has repeatedly reminded retirees that the law requires him to answer three big questions: Did Central States exhaust all other alternatives? Are the benefit cuts equitable? And will they preserve the fund?" (Bloomberg)
Private Equity Fund Liable for Portfolio Company's Pension Contributions
"[T]he court ruled that the Sun Capital entities should be treated as a joint venture even though they were not a partnership-in-fact.... Although the ruling does not implicate tax rules ... if the IRS [were to take] a similar position, the consequences [could] extend to minimum coverage and nondiscrimination testing for retirement plans of portfolio companies, because the same common control rules apply to those tests." [Sun Capital Partners III, LP, et al. v. New England Teamsters & Trucking Industry Pension Fund, No. 10-10921 (D. Mass. Mar. 28, 2016)] (RSM US)
Private Equity Funds Liable to Multiemployer Pension Plan
"Two private equity funds are jointly liable for $4.5 million in pension fund debts owed by one of the companies they own, a federal judge in Massachusetts ruled. This decision is a blow to the private equity community, which may be forced to reevaluate the risks associated with investing in companies that have obligations to multiemployer pension plans.... The Sun Capital funds argued that they each failed to meet the 80 percent ownership threshold required by the statute, because one fund owned 70 percent of the company that owned Scott Brass, and the other fund owned 30 percent. However, [the judge] found the two Sun Capital funds combined to create a joint venture or partnership under federal law, and that 'partnership-in-fact' was a trade or business that owned the entirety of Scott Brass." [Sun Capital Partners III, LP, et al. v. New England Teamsters & Trucking Industry Pension Fund, No. 10-10921 (D. Mass. Mar. 28, 2016)] (Bloomberg BNA)
Text of Federal District Court Opinion: Private Equity Funds Jointly Liable for Multiemployer Pension Plan Withdrawal Liability (PDF)
44 pages. "[T]he 80 percent ownership rule appears to provide a roadmap for exactly how to contract around withdrawal liability. In this case, for example, the Funds forthrightly admit that an important purpose in dividing ownership of portfolio companies between multiple funds is to keep ownership below 80 percent and avoid withdrawal liability.... The LLC appears to be better understood as a vehicle for the coordination of the two Sun Funds -- and an attempt to limit liability -- than as a truly independent entity. It is another layer in a complex organizational arrangement. Under the MPPAA framework, which looks past the formal separation of entities, it is not clear why there should be any difference if the Sun Funds invest in Scott Brass, Inc. directly, invest through an intermediary holding company, or invest through both an intermediary holding company and an intermediary LLC." [Sun Capital Partners III, LP, et al. v. New England Teamsters & Trucking Industry Pension Fund, No. 10-10921 (D. Mass. Mar. 28, 2016)] (U.S. District Court for the District of Massachusetts)

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