On November 17, 2014, the federal Pension Benefit Guaranty Corp released a dire report for multi-employer pension funds – they are chronically underfunded to the tune of $42.2 billion. As ENR reports, nearly 4 million workers in the construction industry are covered by multi-employer plans and the construction industry accounted for 55% of all multi-employer plans.
These facts will have two major consequences for employers participating in multi-employer pension plans. First, union trustees will become increasingly aggressive toward delinquent employers. I have already seen an uptick in collection claims brought against union construction firms, including against firms that are solvent, that have a strong payment history into the funds, and are otherwise dedicated to employing union labor.
Second, ERISA withdrawal liability will continue to be a big issue for employers that decide to rescind their collective bargaining agreement, merge with a non-signatory firm, or simply go out of business.
Under ERISA. an employer who completely withdraws from a multi-employer plan may be liable to the plan for vested, yet unfunded, benefits for its employees. For construction industry employers, a complete withdrawal occurs only if an employer “ceases to have an obligation to contribute under the plan,” and the employer “(i) continues to perform work in the jurisdiction of the collective bargaining agreement … or (ii) resumes such work within 5 years … and does not renew the obligation at the time of the resumption.”
Withdrawal liability can be significant especially for contractors that have been in business for many years and, thus, share a portion of vested benefits. Withdrawal liability can follow through to a successor corporation or personally to the individual shareholders and officers of the withdrawing corporation.
The take away: stay current on your benefit contributions and assess potential withdrawal liability before ending operations or merging with a new firm.