PLAs often require bidders to participate in union multi-employer pension programs mandated by collective bargaining agreements. Contributing to multi-employer pension plans is problematic for non-union contractors for a variety of reasons highlighted here.
An interesting article courtesy of Chang Ruthenberg and Long Employee Benefit Attorneys warns employers about the problems of contributing to multiemployer pension plans (“Cautions To Employers Considering A Multiemployer Plan“).
Withdrawal Liability!
The defined benefit plan may present another unanticipated disadvantage – withdrawal liability. A sponsoring employer that partially or fully withdraws from a multiemployer defined benefit plan may be hit with an accelerated obligation to fully fund the benefits accrued under the plan by its employees, resulting in a much larger than normal contribution to the plan for a period of years after withdrawing from the plan.Future benefits under a multiemployer defined benefit plan are not fully funded as they accrue but are funded by future contributions and trust fund earnings. If the benefits accrued by the employer’s employees are not fully funded when a sponsoring employer withdraws, the employer’s obligation to fully fund benefits is accelerated.
Withdrawal liability may be triggered, not only by the employer’s decision to withdraw from the plan or to terminate the collective bargaining agreement, but also by events beyond the employer’s control: a vote by employees to leave the union, a decline of business and lay-off of union employees, closure of the business, a sale of the business, or a merger. Any total cessation of the obligation to contribute will result in an assessment of withdrawal liability. Thus, any merger, acquisition, or sale of a business must be carefully structured to avoid incurring withdrawal liability. Partial withdrawal liability will also be assessed whenever the employer’s level of annual contributions substantially declines. Thus, any plan to avoid withdrawal liability by gradually reducing the contribution obligation over a series of years must be carefully managed to avoid triggering partial withdrawal liability.
The article concludes with sound legal advice. Government officials considering PLAs should investigate or require disclosure about the health of pension plans before requiring bidders to comply with multiemployer pension plan mandates typical in most PLAs:
The small employer should be cautious about signing a multiemployer collective bargaining agreement. The employer should carefully examine the current funding status of the multiemployer plans, the economic prospects for itself and the other participating employers, and whether the gains from participation outweigh the risks and loss of control of benefits and funding that will follow. If the employer finds itself stuck in a cluster of multiemployer plans from which it would like to withdraw, it should consult legal counsel to weigh the options for doing so.
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