Under the Multiemployer Pension Reform Act of 2014 (MPRA), financially troubled multiemployer pension plans in “critical and declining” status are permitted to reduce the pension benefits payable to retirees and beneficiaries. Under the applicable rules, the reduction first requires approval by the US Department of Treasury (Treasury), in consultation with the US Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PBGC). Within 30 days of such regulatory approval, the suspension then must be presented to eligible participants and beneficiaries for a vote to ratify or reject the benefit reductions under a process supervised by Treasury. Under applicable regulations, the benefit reduction approved by Treasury will go forward unless a majority of eligible voters reject the reduction. In counting votes, eligible voters to whom ballots were not provided (because they could not be located) are counted as votes to reject the benefit reduction, but eligible voters to whom ballots were provided, but who failed to vote, are counted as votes to ratify the benefit reduction. These default voting rules have resulted in the implementation of benefit reductions where the number of non-voting eligible voters exceeded the number of eligible voters who affirmatively voted for the benefit reductions.
In the wake of the JSC’s demise, Rep. Richard Neal (D-Massachusetts) and Rep. Bobby Scott (D-Virginia) have reintroduced the so-called “Butch Lewis” Act. Titled “The Rehabilitation for Multiemployer Pensions Act,” the legislation would establish a federal loan program for critical and declining (“red zone”) multiemployer pension plans administered through a newly-created federal agency, the Pension Rehabilitation Administration (PRA).
Many in the multiemployer pension plan community expected significant developments in 2018 in the ongoing effort to address the multiemployer pension plan solvency crisis. There were higher than usual expectations when the Joint Select Committee on Solvency of Multiemployer Pension Plans (JSC) was formed in early 2018 and tasked with developing legislative solutions to improve the solvency of multiemployer pension plans and the Pension Benefit Guaranty Corporation (PBGC). Unfortunately, after a year-long effort during which several ideas were discussed, the JSC failed to agree on any formal proposal. In the wake of the JSC’s demise, the so-called “Butch Lewis” Act has been reintroduced, which is addressed in Part 2 of this series.
On September 14, 2018, the Pension Benefit Guaranty Corporation (PBGC) published final regulations intended to facilitate plan mergers and transfers between multiemployer pension plans under ERISA Section 4231. These regulations become effective October 15, 2018.
ERISA Section 4231, as amended by the Multiemployer Pension Reform Act of 2014 (MPRA), permits the PBGC to facilitate mergers of multiemployer pension plans and to provide financial assistance for such mergers where at least one of the participating plans is in critical and declining status. Generally, a critical and declining plan is projected to become insolvent within 15 to 20 years.
Employers that do not have large employee populations have for many years struggled to provide competitive health coverage to their employees. In an effort to offer the economies of scale and risk spreading that exist when large numbers of employees are covered in a single group health plan, there have been many attempts to structure health insurance arrangements (typically referred to as multiple employer welfare arrangements, or MEWAs) in which unrelated employers can participate. Unfortunately, many MEWAs have been undercapitalized, unable to provide the cost savings they promoted, and/or noncompliant with state and federal law. Although there has been a recent effort by the US Department of Labor (DOL) (through a final regulation issued in June of 2018) to expand the ability of employer associations to offer group health plan coverage to their members, this effort will primarily benefit small employers who currently obtain health coverage through the individual or small group insurance markets.
As has been widely reported, including in our recent post, Congress Establishes Select Committee to Address Underfunded Multiemployer Pension Plans, a significant number of multiemployer pension plans, which provide pension benefits to more than 10 million Americans, are severely underfunded and many are facing impending insolvency. To learn more about the history of multiemployer plans, how this crisis is unfolding, the efforts that have been made to ameliorate the funding issues, and potential solutions, we recommend the U.S. Chamber of Commerce’s (Chamber’s) report, The Multiemployer Pension Plan Crisis: The History, Legislation, and What’s Next. Morgan Lewis collaborated with the Chamber in preparing this report, which the Chamber has submitted to the congressional select committee.
The Internal Revenue Service (IRS) recently announced that it is requesting comments on the possible expansion of its favorable determination letter program for individually designed plans. Specifically, the IRS is interested in public input on circumstances it should consider in its decision to accept applications for favorable determination involving amended plans, or types of plan amendments, during calendar year 2019. Currently, the IRS only accepts applications for rulings on initial plan qualification or qualification on termination.
Effective January 1, 2017, the IRS eliminated the staggered approach to accepting applications for favorable determination where such applications were accepted in a calendar year for plans in that year’s filing cycle. A plan’s filing cycle was based on the last digit of its sponsor’s employer identification number, and the cycles were identified as Cycles A through E. This elimination effectively terminated the favorable determination letter program for ongoing plans, though the program continued for plans where initial qualification or qualification on termination was sought.
In recent years, we have seen an unsettling trend with courts disregarding the terms of parties’ corporate asset purchase agreements and holding purchasers liable for their target’s multiemployer pension contribution and withdrawal liability under the theory of successor liability. A recent decision by the US Court of Appeals for the Seventh Circuit, Indiana Electrical Workers Pension Benefit Fund v. ManWeb Services, Inc. (ManWeb II), building on the court’s 2015 decision in Tsareff v. ManWeb Services, Inc. (ManWeb I), suggests that the reach of successor liability for multiemployer pension contributions and withdrawal liability may still be expanding.
The potential financial impact of severely underfunded multiemployer pension plans continues to be the focus of contributing employers, boards of trustees, and the participants and beneficiaries of such plans. The Bipartisan Budget Act of 2018 (Budget Act), passed into law on February 9, 2018, includes provisions intended to address these concerns. Of particular significance, the Budget Act creates a special select committee composed of 16 members—equally divided between the House and Senate and equally divided between political parties—to review proposals to improve the funding status of struggling multiemployer pension plans. The select committee is expected to review four legislative proposals that are currently available, and may review additional proposals. The select committee has until November 30, 2018, to report its recommendations and proposed legislative solutions, and Congress then has until the December adjournment date (at this time not determined) to vote on the recommendations. As 2018 continues, we will be monitoring and reporting on the actions of the select committee, including its recommendations at the end of November and any congressional action on those recommendations.
On July 20, the Nashville-based United Furniture Workers Pension Fund A (the Fund) became the second multiemployer pension plan to receive the US Department of the Treasury’s approval to suspend benefits under the Multiemployer Pension Reform Act of 2014 (MPRA). This is the first application approved under the Trump administration.
The Fund, which withdrew and resubmitted its application on March 15, 2017, proposed reducing all 9,900 participants and beneficiaries’ benefits to the maximum extent allowed by MPRA (i.e., to 110% of the Pension Benefit Guaranty Corporation (PBGC) monthly guarantee). Simultaneously, the PBGC conditionally approved the Fund’s request to partition all of the guaranteed benefit liabilities of its terminated vested participants and 56% of its retirees, beneficiaries, and disabled participants to a separate plan paid for by the PBGC.