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MULTI-EMPLOYER PENSION FUNDS CAN BE TROUBLE IN MERGERS AND ACQUISITIONS

Guest Author:  Charles Pautsch

Pautsch, Spognardi & Baiocchi Legal Group LLP

Those familiar with multi-employer pension funds know that they can spell big trouble for participating employers. Those not familiar with them better learn about their man nuances BEFORE ever becoming involved with them through an acquisition, merger or other means. 

A multi employer pension plan is a defined benefit plan established through collective bargaining with a union. They are sometimes called collectively-bargained plans or Taft-Hartley Plans. Collective bargaining itself typically only establishes contribution levels for participating employers, setting these at dollar amounts per hours worked by employees in the collective bargaining unit. Benefit levels, as well as accrual and vesting schedules, are determined by the Plan or Fund itself, usually by a committee of representatives from the Union and the employers’ Association. The most famous of these plans, and perhaps the most troubled, is the Central States Teamsters Fund. Other large Funds include the IBEW Fund, the UNITE Fund and the Carpenters Fund. But there are many others as they cover virtually every unionized industry, are quite prevalent in construction, transportation and the hotel and gaming industries where union’s have long held a foothold. 

These Funds have had a rocky history. Many of them have been plagued with corruption such as seeing Plan loans made to “insiders”. Many have adopted poor investment strategies. Virtually all were racked by the stock market swoons associated with the dot com bust of 2001 and the meltdown of 2008. And virtually all have suffered as a result of unfavorable long-term actuarial trends brought about by industry contraction and the simple reluctance of many companies to refuse to join or bargain their way into a Taft-Hartley Plan. 

Because of this rocky history, Congress has acted to prop up these plans on several critical occasions. The most noteworthy of these, until recently, was the passage of the legendary Multi-Employer Pension Plan Amendments Act (MEPPAA). Some have called it the most pro-Union piece of labor legislation passed since the Wagner Act in 1935. It saved many of these Plans by automatically assessing Withdrawal Liability to each partially or totally withdrawing employer based on their pro-rata share of unfunded vested liability(UVB). And this assessment is made regardless of whether or not the withdrawing employer has made all of its own required contributions. And the liability established is usually set as personal on the business owners and is nearly absolute—-not voidable in bankruptcy. 

And now Congress has acted again. In December 2014, it passed a measure with the mixed blessing of union and employer groups, (some support/some oppose), which allow troubled Funds, including  several big ones spiraling to insolvency, to actually cut back on the vested benefit levels established for certain pensioners and would-be pensioners. Earlier this year the Pension Benefit Guaranty Corporation issued regulations prescribing the process by which these cuts to retirees’ benefits could be made. And just this week the Treasury Secretary appointed Kenneth Feinberg, compensation expert who managed the 9/11 and BP Gulf spill comp funds, to oversee these cuts. 

For employers, these lessons of the past and current developments should serve as a clear warning. If you are contemplating acquiring a facility or business that is participant in these Funds—–DUE DILIGENCE of the highest order is required. And if you are already participating in these funds , carefully thought out funding or withdrawal options should be considered. 

 In the merger or acquisition situation, a savvy buyer can minimize most of the risks associated with these plans through careful analysis and aggressive negotiation of terms upon acquisition. Likewise a shrewd seller can take aim at the prospect of transferring all or some of its withdrawal liability under the plan.  A careful review of current data on the Plan’s historical performance and particularly its trends on the critical measure that determines withdrawal liability—unfunded vested liability (UVB)—– is absolutely essential to evaluating a sale from either perspective—seller or buyer. In a sale of assets involving a concern covered by a Plan, Section 4204 is available to the parties as a means to transfer assets of the concern and the existing UVB to the Buyer without triggering withdrawal liability, so long as the Section’s provisions regarding secondary liability and bonding requirements for the Seller are adhered to. 

Businesses with plans already in place covering employees can minimize the risks of triggering partial or even complete withdrawal by carefully monitoring declining contribution levels and being alert to the types of transactions that trigger complete withdrawal.

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The author of this article is Charles Pautsch with Pautsch, Spognardi & Baiocchi Legal Group LLP . His complete biography can be found at www.psb-attorneys.com.  He and other PSB attorneys have considerable experience at guiding employers in unionized industries through the intricacies of MEPPAA and its accompanying regulations. Mr. Pautsch can be reached at 414-810-9944 or cwp@psb-attorneys.com

This entry was posted on Wednesday, July 8th, 2015 at 12:42 PM and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.