There are both single-employer pension plans and multiple employer plans (MEPs). In a single-employer plan, only employees within the same “controlled group” of businesses are allowed to participate. Put very simply (because the rules are complicated), the controlled group consists of different entities that share enough common ownership that they are treated as a single employer for employee benefits purposes. And all of those employers’ employees are able to participate in one plan.
Construction companies with union employees often must make contributions to a defined benefit pension plan sponsored by the union. These plans are called “multiemployer” pension plans.
As a general rule, multiemployer plans are not well-funded. In 2015, for example, a federal study showed that 98.3 percent of multiemployer plans were underfunded. Collectively, that underfunding surpassed $560 billion. And nearly 40 percent of multiemployer plans are in the construction industry.
As discussed below, even though a church plan was operated in accordance with ERISA and the plan sponsor may have thought it was required to do so, as long as no 410(d) election was made, it is “no harm, no foul” for the plan’s status as a church plan.
Businesses with a large number of union employees can often feel trapped in union-sponsored pension plans. This is because “withdrawal liability” — i.e., the employer’s share of an underfunded multiemployer pension plan’s liabilities — can be huge, easily in the tens of millions of dollars. However, as explained below, there is an exemption that employers in the building and construction industry can rely on to avoid withdrawal liability.
The U.S. Court of Appeals for the Fifth Circuit has ordered a Mississippi district court judge to reconsider approval of a $150 million settlement deal regarding an underfunded pension plan.
In Jones v. Singing River Health Servs. Found., No. 16-60550, 2017 WL 3178624 (5th Cir. July 27, 2017), Singing River Health Services Foundation (SRHS), a community-owned not-for-profit health system in Jackson County, Mississippi, failed to make contributions to its pension plan between 2009 and 2014, when the hospital board officially froze the plan. The missed contributions exceeded $55 million. When the financially imperiled health system sought to terminate and liquidate the plan, participants initiated a flurry of state and federal lawsuits. The settlement covered three consolidated federal court cases.
In reaction to the U.S. Treasury Department’s recent rejection of its proposed pension rescue plan, the Central States pension plan’s sponsor is calling on Congress to find a solution to its pending insolvency.
The Treasury Department rejected the Central States, Southeast and Southwest Areas Pension Plan’s application on May 6, 2016, because the proposed suspension failed to satisfy the statutory criteria for approval of benefit suspensions.