MULTIEMPLOYER PENSION PLANS WITHDRAWAL LIABILITY WORKSHOP WITHDRAWAL LIABILITY WORKSHOP INTRODUCTION OF Presented By: SPEAKERS Phillip A. Romello, FCA, MAAA, EA The Segal Co., Washington, DC AND Thomas Vasiljevich, Esq. Robert P. Casey, Esq. Ogletree Deakins, Chicago, IL PROGRAM AGC Construction Labor Law Symposium Washington, DC April 19, 2012 OUTLINE OF PRESENTATION LEGAL ROADMAP • Legal Roadmap • Multiemployer Pension Plan Amendments Act of 1980. • Actuarial Issues • Protect asset base of pension plan from withdrawing employers • Enforcement • Exit fee, payment of share of unfunded vested • Case Study liabilities 1
BASIC RULES BASIC RULES • Complete Withdrawal (§4203) • Partial Withdrawal (§4205) • 70% decline in contribution base units (usually measured in • Permanently ceases to have an obligation to hours), or contribute, or • Partial cessation of contribution obligation, either • Permanently ceases all covered operations • Under some but not all CBAs, or under plan. • For work performed at some but not all covered facilities. • Transfer of work to employer controlled entity BASIC RULES BASIC RULES • Who Pays? • When Does Withdrawal Occur • Signatory Employer • Sale of Business • Controlled Group Members • Downsizing •Be Careful • Going Non ‐ Union •All Trades or Businesses under Common • Negotiating Plan out of CBA Control or Ownership • Union Won’t Agree to New CBA •Internal Revenue Code §§414(b) and (c) 2
BASIC RULES BASIC RULES • Estimates of Withdrawal Liability • Estimates of Withdrawal Liability • Contributing employer entitled to receive, • Have Right to Request Every 12 Months within 180 days of a written request: • Timing of Request Critical • Estimated amount of employer’s withdrawal liability, if • Official Estimate or Spreadsheet employer withdrew from plan on last day of preceding year, and • Confirm Plan is Construction Industry Plan and • An explanation of how the estimated liability was Construction Exemption Applies determined. EXCEPTIONS EXCEPTIONS • Free Look Rule (§4210) • Sale of Assets Exemption (§4204) • Employer Has No Withdrawal Liability Upon • May apply if: Withdrawal if Obligation to Contribute Lasts • Purchaser obligated to contribute at same level as Seller, No Longer than Number of Years Required for and Vesting. • Purchaser posts bond, and • Seller remains secondarily liable. • Must Satisfy Numerical Tests • Plan Trustees Must Adopt Rule. 3
CONSTRUCTION INDUSTRY RULES CONSTRUCTION INDUSTRY RULES • Construction Industry Exemption • Construction Industry Exemption (§4203(b)) • Effect: • Applies If: • Substantially All ( ≥ 85%) of the Employees for whom Employer • Complete Withdrawal unless Employer ceases to have obligation to contribute, and does not continue made contributions to Plan are in the Building and to work or resume work in the jurisdiction within 5 Construction Industry, and years. • Plan Must Primarily Cover Building and Construction Industry • Partial Withdrawal unless Employer’s obligation to Employees or Plan Must Adopt Exemption. contribute continues for no more than an insubstantial portion of its work in the jurisdiction. CONSTRUCTION INDUSTRY RULES CONSTRUCTION INDUSTRY RULES • Construction Industry Exemption • Project Labor Agreements • Project Labor Agreements • Avoid Agreeing to Incorporation of Trust Agreements • Free Look Rule • Is there Protection? • De Minimis Exception • ERISA Section 4203(b)(2)(B) • Confirm CBA is PLA: Work outside PLA should never *continues or resumes covered work in the jurisdiction of violate CIE the collective bargaining agreement for which • Underlying Funds Have Right to Make contributions are not made* Determination/Assessment • Right or Wrong; May Have to Arbitrate 4
MASS WITHDRAWAL LIABILITY MASS WITHDRAWAL LIABILITY • All Employers in the Plan Withdraw (the obligation • Three types of Mass Withdrawal Liability to contribute ceases), or • Initial • Redetermination • Substantially All Employers Withdraw • Reallocation pursuant to an Agreement to Withdraw MASS WITHDRAWAL LIABILITY OTHER ISSUES • Liability is calculated under the normal • ERISA Section 4235 withdrawal liability rules, except: • Union Decertified/Thrown Out • 20 year cap lifted • New Union/New Plan • Ability to Use De Minimis Reduction for Prior • Can Avoid Withdrawal Liability Assessment Withdrawals Curtailed (3 year lookback) • Must Follow Specific Procedures and New Plan Must be Financially Solid 5
OTHER ISSUES • Get Union to Indemnify Employer for Liability in Calculating Withdrawal Liability Excess of Contractual Contribution Amounts • 3 rd Circuit Says OK Actuarial Issues • Pittsburgh Mack Truck Sales v. Int’l Union of Operating Engineers, Local Union No. 66, 07 ‐ 3938, 9 ‐ 4 ‐ 09 • 6 th Circuit Says OK • Shelter Distribution, Inc. v. Gen’l Drivers, Warehouseman & Helpers Local Union No. 89, No. 11 ‐ 5450, 3 ‐ 16 ‐ 12 Actuarial Standards Actuarial Standards (cont’d) • Actuaries practicing in the US are governed by • Selected Standards of Practice different standards promulgated by the American • Measuring Pension Obligations (#4) Academy of Actuaries (AAA) • Data Quality (#23) • The AAA: • Selection of Economic Assumptions for Measuring • Establishes professional standards of actuarial Pension Obligations (#27) qualification, practice, and conduct • Selection of Demographic and Non ‐ Economic • Advances actuarial practice by informing and educating its Assumptions for Measuring Pension Obligations (#35) members on public policy and professionalism issues and current and emerging practices 6
Actuarial Standards (cont’d) Assumptions/Methodology • Selected Standards of Practice (cont’d) • MPPAA stipulates that PBGC may promulgate regulations regarding the determination of UVB • Actuarial Communications (#41) • Selection and use of Asset Valuation Methods for Pension • 30 years later—no regulations Valuations (#44) • “Actuary’s best estimate” applies otherwise • Qualification Standards for Actuaries Issuing • Identify/understand your Plan’s methodology Statements of Actuarial Opinion in the US • Code of Professional Conduct Assumptions/Methodology continued Assumptions/Methodology continued • Ongoing valuation assumptions for liabilities and • Assumptions beyond the interest rate actuarial value of assets • Mortality • “Segal Blend” assumptions for liabilities and market • Retirement ages/rates value of assets • Plan ‐ specific assumptions • Has withstood all challenges to date • PBGC ‐ based interest assumptions only with either asset value 7
Assumptions/Methodology continued Procedural Requirements • Supreme Court decision: Concrete Pipe and Products • For each Plan Year that a “pool” exists, required of California, Inc. v. Construction Laborers Pension information is: Trust for Southern California 113 S.Ct. 2264 (1993) • Total dollars of contributions for that year and prior (“Concrete Pipe”) 4 years • Total “contribution base units” (typically hours) • Ongoing valuation assumptions and actuarial value of assets may be alternative method to compute UVB • Highest contribution rate during last ten years • If adopted by the Board, not necessarily the actuary’s “best estimate” Allocation Method for Construction Funds Presumptive Method ‐ Example Presumptive Method • Develop the pools of liability for each year • Each year’s change in UVB creates a “pool” of liability Pools • Pools can be positive or negative Plan Wide • Each pool is allocated based on contribution history over 5 12/31: UVB for W/L 2008 2009 2010 2011 years 2007 $0 2008 $8,800,000 $8,800,000 $8,360,000 $7,920,000 $7,480,000 • Pools written down 5% per year from inception 2009 $112,000,000 N/A $103,640,000 $98,458,000 $93,276,000 • Maximum of 20 pools can apply 2010 $100,000,000 N/A N/A -$6,378,000 -$6,059,100 • Only method available to construction industry plans 2011 $40,000,000 N/A N/A N/A -$54,696,900 Total $8,800,000 $112,000,000 $100,000,000 $40,000,000 8
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