Introduction to Multiemployer Plans
- PBGC Multiemployer Program Background
- Definition of a Multiemployer Plan
- Multiemployer Plan Coverage
- Control of Multiemployer Plans
- Plan Benefit Structures
- Employer Contributions
- Investment Decisions
PBGC Multiemployer Program Background
PBGC's insurance programs were created as part of ERISA in 1974 to protect retirees' pension benefits. In 1980, Congress enacted the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) to strengthen the pension protection program for multiemployer plans.
The amendments in MPPAA:
- Strengthened the funding requirements for multiemployer plans,
- Set new funding and benefit adjustment rules for financially weak plans,
- Revised the multiemployer termination insurance system to reduce the potential burden on PBGC and to provide better incentives for employers to continue funding multiemployer plans, and
- Established financial requirements — called withdrawal liability — for employers that withdraw from multiemployer plans.
Definition of a Multiemployer Plan
(ERISA Secs. 3(37) and 4001(a)(3))
A multiemployer plan is a collectively bargained plan maintained by more than one employer, usually within the same or related industries, and a labor union. These plans are often referred to as "Taft-Hartley plans."
Multiemployer Plan Coverage
There are about 1,400 multiemployer defined benefit pension plans, covering about 10 million participants. Many of these participants are employed by small companies in the building and construction industries.
Other industries with significant numbers of workers covered by multiemployer plans are:
- retail trade and service industries
- trucking and transportation industries, and
- entertainment (film, television and theater)
Control of Multiemployer Plans
Most plans are jointly administered and governed by a board of trustees, with labor and management equally represented.
- Management trustees — the contributing employers or an association to which they belong typically determine how the management trustees will be selected.
- Labor trustees — the union typically determines how the labor trustees are selected.
A trustee is required to act in the sole and exclusive interest of the plan and its participants, regardless of who elects or appoints the trustee.
The board of trustees normally makes decisions about the plan’s benefit structure. The bargaining parties negotiate a contribution rate and the trustees translate that rate into a benefit. Decisions to increase benefits or change the plan are also typically made by the board of trustees. In some industries (especially mining and segments of trucking), employers and unions fix the benefit levels through collective bargaining.
The costs of administering a plan are generally paid from plan assets.
Plan Benefit Structures
Multiemployer plans are subject to many of the vesting, accrual, and minimum participation rules that apply to single-employer plans. However, there are differences in plan design. Many multiemployer plans are "unit benefit" plans that offer a specified dollar-amount benefit per month multiplied by years of credited service. Some plans offer a choice of enhanced benefits to employees whose employers agree to pay higher contributions.
In addition, multiemployer plans offer portability — participants retain service if they switch employment from one contributing employer to another within the same plan. Further, many plans in the same industry (for example, trucking) offer reciprocity whereby an employee who moves from one geographic area to another can transfer credit between plans.
In multiemployer plans, the amount of the employer's contribution is usually set by a collective bargaining agreement that specifies a contribution formula (such as $3 per hour worked by each employee covered by the agreement) and further provides that contributions must be paid to the plan on a monthly basis.
If an employer is delinquent, ERISA Sec. 502(g) permits the plan to sue and obtain the delinquency plus interest, liquidated damages, court costs, and reasonable attorney fees. This is a major difference between single and multiemployer plans.
ERISA has one set of investment rules that generally apply to all defined benefit plans. Plan assets must be invested prudently and solely in the interests of participants.