requiring contributions in excess of CBE obligations

[Guest jigpsu100]

If a multiemployer fund is underfunded (due to performance of investments) can the trustee unilaterally require participating employers to pay more into the fund than is required under the CBE? There was a thread a couple of years ago but this wasn't really fleshed out. I guess it could happen in a reorg. But outside of that, I'm just not sure of the answer.

[Effen]

Who controls the employer contribution rate? Some funds the union decides how much of their increase they will allocate to the plan. Other funds, the employers tell the union how much will go into the plan.

Ultimately the Employers are responsible. If the Plan becomes deficient, the Employers will owe the excise tax, plus the contribution.

I don't know specifically how the Trustees force the employers to contribute more, but if the Plan is close to deficiency, the employers will have to pay it one way or another.

This is why projections are critical.

[Kirk Maldonado]

Regardless of what rules apply today, those rules could be changed by the proposed pension funding reform legislation. The draft of the Pension Transparency Act that I got was 615 pages long, although most of it did not deal with multiemployer plans.

Stay tuned.

[Guest HarveyC]

Asking employers to increase contributions before a CBA expires may not be easy. Have you considered other options such as reducing future benefit accruals and/or other plan benefits, modifying funding and/or asset smoothing methods, changing manner in which operational expenses are recognized, etc?

[Erik Read]

Do the terms of the CBA specify the amount contributed, or do they simply state that the parties agree to be bound by the terms of the trust and make contributions as determined by said trust?

If so, then your okay with a supplemental contribution or increasing the rate, if not, then you would have to look to the specifics of each CBA, and have the trust provide a period for the supplemental if neccessary, so each CBA would be subject to the new contribution at ratification for x period regardless of when the funding begins - accounting/actuary nightmare - sure, but you've gotta do what ya gotta do.

[JanetM]

Here is what the SMW sent to all of us poor participating employers.

FundingIncreaseNotice.pdf

[Guest gdburns]

I usually see the CBA as covering current contribution levels, but since the Plan itself usually precedes and definitely survives any periodic CBA, there are Trust and Plan requirements that the employer must maintain the Plan's ability to fund the future benefits.

[JanetM]

If funding falls low enough, the excise tax imposed by IRC 412 and IRC 4971 will be imposed on contributing employers. Since those are required by law they can't be avoided by saying the CBA doesn't require them.

[Bill Ecklund]

Assuming that the trust agreement or the collective bargaining agreement does not authorize any increase in contributions, is there any other authority which would authorize the Trustees to collect the minimum contribution requirements? The Internal Revenue Code and ERISA both require that employers meet the minimum contribution requirement.

Section 412 of the Internal Revenue Code at paragraph (11)(A) provides as follows:

“Except as provided in subparagraph (B), the amount of any contribution required by this Section and any required installments under subsection (m) shall be paid the by employer responsible for contributing to or under the plan the amount described in subsection (b)(3)(A). Section 412 is the minimum funding standards and the section I cited above requires employers to pay into the plan those minimum contribution requirements.”

There is identical provision in ERISA Section 302©(11)(A).

Failure to meet the requirement of both the Internal Revenue Code and ERISA results in the imposition of excise taxes by the Internal Revenue Service pursuant to Section 4971. The excise tax under Section 4971 is 5%. It is imposed if the minimum contribution requirement has not been met within 8 ½ months of the close of the plan year (temporary Reg. Section 11.412©-12(b)).

Although a case can be made that both the Internal Revenue Code and ERISA mandate that employers who contribute to multi-employer plans are required to meet the minimum contribution requirement, the Department of Labor may not have the same opinion. In DOL Opinion Letter 2002-07A (7/25/02), the Department of Labor responded to a request as to whether or not two independent employers could combine their single employer plans to one plan, and thereby create a multi-employer plan. Both of the single employer plans were under funded. The DOL reviewed the term “multi-employer plan” and the regulations discussing that term. One of the requirements is that the plan must be established for a substantial business purpose. In this particular case, the DOL determined that there was no substantial business purpose and therefore, the plan could not be a multi-employer plan. In writing that Opinion Letter, however, the Department of Labor made following statement:

“Even though the new plan would inherit a substantial level of under funding from the Anchor and Glenshaw Plans, as participating employers in a presumed multi-employer plan, Anchor and Glenshaw would be able to limit their contributions to the plan to the amounts agreed to in the collective bargaining process rather than having to make contributions sufficient to meet the minimum funding requirement otherwise applicable to Anchor and Glenshaw Plans as to single employer plans under ERISA and the Internal Revenue Code.”

The Department of Labor also noted that the PBGC’s maximum annual guarantee of benefits applicable to the single employer plans that they terminated is currently $42,954; however, if it were converted to a multi-employer plan, the guarantee would be $12,870 per year.

Although the statement quoted above was not essential for the Opinion Letter, the Department did make it. It is unclear whether it is simply an offhand comment, or, in fact, expresses the Department’s opinion as to that issue.

For all practical purposes, however, the issue as to whether or not Trustees can force employers to contribute beyond what their collective bargaining agreement requires is more of an academic one than a legal one. Employers would be foolish not to make the additional contribution to the plan in order to meet the MCR, because they would be incurring a greater liability for payment of excise taxes.

If the Trustees of a multi-employer plan sent out a “cash call” to all contributing employers, and one or more employers failed to meet that demand, the Regulations indicate quite clearly that the Trustees can allocate the excise tax to the non-contributing employers in proportion to their unpaid contribution

[GBurns]

I have not gone and looked up any Trust agreements so this off the top of my head.

I recall that the Adoption Agreement and the Initial Trust documents state the purpose of the Plan. That purpose is, in a nutshell, to provide retirement benefits by creating and maintaining a Plan. There is no mention of contribution rates.

In my experience, usually when a Plan is initially established it is during a CBA period and so is not addressed in the CBA but in a Memo of Understanding. This MOU usually restates the Adoption Agreement and requires that the Plan be maintained until the retirement dates of the participants. There is no mention in the MOU of contribution rates.

At the next and subsequent CB, contribution rates are argued and agreed on for the covered period.

So , to me the employer is contractually obligated by the MOU and Trust agreements etc to maintain the Plan (including its viability) regardless of the contribution rate set by any of the CBAs that will be signed over the years.