We have been monitoring and reporting on several disquieting events which have occurred in the multi-employer pension plan world within the past few months.

In September 2015, the Central States Southeast and Southwest Area Pension Fund availed itself of the relief permitted under the Kline-Miller Multiemployer Pension Reform Act of 2014 (“Kline-Miller Act”) by applying to the Department of Treasury (“Treasury”) to reduce “core benefits” in light of the Fund’s “critical and declining” status. Within the succeeding three months, two other funds — the Iron Workers Local 17 Pension Fund and the Teamsters Local 469 Pension Plan — made similar applications.

Recently in the Central States situation, Special Master Kenneth Feinberg — appointed by Treasury to oversee the Kline-Miller Act — has been conducting a series of public meetings around the country to permit Teamsters — both active and retired — to voice their concerns over the cuts, thereby “putting a face” on this problem. The proposed cuts have been reported as ranging between 39.9% to 60.7%.  So, for example, a participant currently receiving a monthly benefit of $3,000 who suffered a 60.7% reduction would see his or her benefit decline to $1,179.99!  Reflecting uncertainty as to what to do, Treasury has once again extended the comment period concerning the reduction in core benefits to March 1, 2016.

It is not clear whether the relief sought by the three funds that have applied to the Treasury will be granted.

The situation is not limited to the three funds that have already sought relief. The Department of Labor reports that there are approximately nine other funds in “critical and declining status” that are also eligible to reduce core benefits.

To further worsen the situation, last week the director of the Pension Benefit Guaranty Corporation (“PBGC”) announced that the agency’s assistance to the United Mine Workers of America 1974 Pension Fund would be a “significant factor” in the PBGC’s multiemployer insurance program’s insolvency. In a September 2015 report, the PBGC reported that its multiemployer pension insurance program was projected to be insolvent by 2025.

These events underscore what has been recognized for years:  employers should not agree to begin contributions to a multiemployer defined benefit pension plan under any circumstances.  As reflected above, there are far too many factors over which the employer will have no control.

Those employers that are currently enmeshed in multi-employer pension plans should not remain passive. Rather, they should begin to consider strategies to exit these plans in future union negotiations.  A first step would be monetizing the withdrawal liability costs and comparing them to possible savings that could be achieved at the bargaining table if the pension fund contributions were to be eliminated.  In some instances, the comparison may reveal that it might be beneficial to negotiate out of the pension fund obligation.

We will continue to monitor the situation and keep you advised.