United States: Bargaining Strategies In The Wake Of Multiemployer Pension Plan Notices Issued Pursuant To The Pension Protection Act

Last Updated: May 21 2008
Article by Dale L. Deitchler and Kevin L. Wright

Introduction: Zone Certification And Notice To Interested Parties

If you contribute to a multi-employer pension fund, the 415-page Pension Protection Act's ("PPA" or "the Act") provisions affecting multi-employer plans are now taking effect. The first of these provisions is the requirement that actuaries certify to the Internal Revenue Service into which funding zone (critical - red; endangered yellow; or no zone - green) the plan falls. Actuarial certification is not due until the 90th day of the plan year. For calendar year plans, that certification was due to be filed with the IRS on March 30, 2008. Within 30 days thereafter, plans must inform all interested parties -participants, beneficiaries, employers, local unions, the Pension Benefit Guaranty Corporation and the Secretary of Labor if the plan falls in the yellow or red zone.

Mandatory notices of yellow/red zone certification have already been issued for a number of funds and should continue to be issued, again depending on the scope of the plan year, throughout 2008. Even some "green" zone plans, at the same time, have taken the opportunity to voluntarily tout their status by notifying participating employers of the fund's good health.

For regional or national employers with multiple labor agreements, a yellow/red notice may have been accomplished by direct communication with the participating operating employer, likely to the payroll official responsible for remitting contributions to each respective fund, as the Act does not mandate notice to a specific employer representative. So, it would behoove centralized corporate labor and benefits representatives operating under one "control group" number for a fund to check with line payroll staff at each location contributing to a multi-employer pension fund to ensure an accounting of any issued notice or notices and/or to check with funds directly.

If the plan is in the yellow (endangered) or red (critical) zone, the trustees are required to put together a funding improvement plan (FIP) for yellow zone plans or a rehabilitation plan (RIP) for a red zone plan. These plans are to include benefit and contribution rate schedules to be delivered to the bargaining parties that are necessary to improve plan funding status showing revised benefit structures, revised contribution structures, or both. For calendar year plans in endangered or critical status in 2008, the FIP/RIP must be in place by November 25, 2008.

If the plan falls in the red zone, employers are required to begin contributing a 5% surcharge (over and above contractually-mandated contributions), beginning 30 days after they receive notice of red zone status. This 5% surcharge is for 2008; the surcharge increases to 10% in 2009 (assuming a calendar year plan). The surcharge has no "benefit bearing" advantage (i.e., it provides no enhanced benefit to employee participants whatsoever).

Bargaining Options For Compliance

Employers receiving funding notices from a "green" zone plan have no bargaining obligations. All other employers receiving funding notices must carefully review the notice, fund improvement plan schedules, and related labor agreements to determine bargaining obligations for compliance and identify the most advantageous approach. Employer obligations broadly depend on whether the plan is a yellow zone plan or red zone plan, as well as on contract status in two categories: (1) mid-term contracts; and (2) expiring contracts. Funds in endangered or critical status may not accept labor agreements that provide for a reduction in the level of contributions for any participants, a suspension of contributions with respect to any period of service, or any new direct or indirect exclusion of younger or newly hired employees from plan participation.

Mid-Term Contracts. Mid-term bargaining obligations only arise if at all with respect to red zone plans. Many funding notices and related correspondence may simply confirm mid-term contract contribution rates as compliant with fund RIP schedule percentage increases. The most recent contribution rate increase imposed by other contracts may have matched fund-mandated RIP scheduled percentage increases for 2008, but not for succeeding years of the contract, and so the bargaining parties will need to re-visit PPA compliance prior to the next scheduled increase, or face surcharges. Many contracts, of course, will be identified as immediately out of compliance with fund mandated increases, resulting in immediate surcharges to the employer. To confirm compliance or noncompliance as identified in these notices, a participating employer would need only to review labor agreement contribution rates and scheduled increases to ensure percentage increases matched those mandated by the Fund's FIP/RIP schedules.

With respect to critical status funds, for out of compliance mid-term contracts, there are two options: (1) within 30 days of notice of critical status, re-open and bargain and agree to the Fund's RIP schedule; or (2) do nothing and be subject to the 5% surcharge on contributions for 2008, increasing to a 10% surcharge in succeeding years. Some funds have indicated limited receptivity to accepting compliant negotiated adjustments beyond the 30-day period, but it is far from clear that, once the surcharge is imposed, the parties have any broad-based ability later to re-open to negotiate schedule-compliant labor agreement adjustments.

Whether to re-open involves a simple comparison between application of the applicable surcharges for the life of the contract (which do not compound but, rather, are based on contract-stated rates) and the percentage increases mandated under the fund's RIP schedule (which may or may not compound from year to year). It is likely that, for example, an employer participating in a fund with an RIP schedule with mandated 8% annual increases, compounded from year to year, will be better off economically in accepting the surcharges for the life of the existing contract.

Whether there is an obligation to re-open an out of compliance mid-term contract, "depends." Absent broad-based re-opener language, it is questionable whether employers have any obligation to bargain for the RIP schedules (or the ability to compel bargaining), rather than simply sit back and wait for imposition of the surcharge. Contract "zipper" clauses forgoing mid-term bargaining over covered bargaining subjects would also be relevant in analyzing whether there is a mid-term bargaining obligation as well as the terms of fund participation agreements. Of course, re-opening brings its own risks, including the possibility of union claims that the contract's no-strike pledge no longer applies. Likewise, re-opening for economic advantage is also of questionable value, as no clear-cut right would exist to bargain to impasse and then implement.

The surcharge applies to any employer that has yet to negotiate benefit language consistent with one of the plan schedules, and will remain in effect until the employer negotiates an agreement. Again, under the PPA, once the Fund issues its critical status letter, the bargaining parties have 30 days to submit a "compliant" collective bargaining agreement.

Expiring/Expired Contracts. Employer bargaining obligations with respect to expiring/expired contracts parallels to some extent those that apply with respect to mid-term contracts, except that those obligations apply to both yellow and red zone funds. As with mid-term contracts, at contract expiration, if the employer's most recent increase conforms on a percentage basis to a fund's improvement plan schedule, then an in-compliance window period will likely apply until the next scheduled increase. Similarly, if the last scheduled increase does not conform to the Fund's rehabilitation schedule, within 30 days of receipt of a plan's funding notice, the statutory surcharge will apply with respect to critical zone funds.

Unlike mid-term contracts, however, in addition to any application of the surcharge, if the parties to an expiring contract do not adopt a fund's improvement plan within the earlier of a bargaining impasse certified by the Secretary of Labor or 180 days after contract expiration, a "default" schedule will apply, in addition to the critical status surcharge. The Act does not specify the process through which impasse certification would take place, nor is there any such provision under the National Labor Relations Act. We await further regulatory guidance on this process. Depending on the improvement plan schedule increases, the surcharge plus default schedule approach in bargaining, if successful, may be initially more costly, but over time may be more beneficial.

Default schedules when imposed may reduce or even eliminate entirely "adjustable benefits," which would include early retirement benefits, post-retirement death benefits, 60-month guarantees, disability benefits not yet in pay status, and similar benefits. Because of potentially dire consequences flowing from imposition of any default schedule, unions are likely to view FIP/RIP schedule adoption as a "must have" term for a successor contract, and economic bargaining strategies must be adjusted accordingly.

Conclusion

Sorting the options for PPA compliance is not difficult once the legal landscape and the operative documents are carefully sifted. For one fund the likely best approach with respect to bargaining, critical zone funds and mid-term contracts can be reduced to a simple strategy: do nothing, and accept the surcharge. For open contracts with critical zone funds, the analysis may be more complex. As with many areas of labor and employee benefits law, the "devil is in the details." It is important that employers weigh all options and consult with experienced legal counsel as funding notices and improvement plans are received.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions