What is withdrawal liability?
Withdrawal liability is assessed to ensure that a withdrawing employer pays its share of plan costs (vested benefits) that have not been paid through previous contributions or investment returns. An assessment occurs when an employer ceases to be a participating employer for any reason, closes an operation location, or significantly reduces its workforce covered by a Plan that has unfunded vested benefit liability.
Why do withdrawing employers have to make withdrawal liability payments?
The Plan is required to assess withdrawal liability under the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA). When an employer withdraws from a plan, employees with a vested pension benefit (current and past) continue to be eligible to draw benefits from the Plan. If the Plan’s vested benefit liability (benefits owed to participants) is larger than the market value of assets (amount of money the Plan has), then the employer is responsible for the portion of the underfunding associated with its employees. Generally, when a plan is fully funded (meaning the market value of assets is larger than the vested benefit liability), an employer can withdraw from the Plan without needing to make any payments.
How is our Plan doing?
The Plan has had unfunded liability since the end of 2008. A rehabilitation plan has been established to return the Plan to financial health. The Plan is making scheduled funding progress and is currently projected to meet its future benchmarks.
When will withdrawal liability end?
At the end of each year, the vested benefit liability is compared to the market value of assets. If there is unfunded vested benefit liability, employers withdrawing in the following year are subject to withdrawal liability. The end of withdrawal liability depends on several unpredictable factors, including future market performance and future interest rates. Withdrawal liability is calculated using interest rates similar to those that would be paid if annuities were purchased to fund participants’ benefits. These rates are currently quite low, which makes liabilities higher. At some point when interest rates come up, liability will go down. When the Plan’s market value of assets becomes larger than the vested benefit liability, the Plan will no longer assess employers’ withdrawal liability. This could occur if interest rates rise and Plan assets recover more substantially.
What if I am part of a controlled group?
For employers that are part of a controlled group, withdrawal liability is based on the group rather than on individual employers. A controlled group is a group of employers that is under common control and is treated as one employer for the purposes of withdrawal liability assessment. A simple example would be multiple locations of the same company that have different CBAs. A more complicated example would be two separate companies that are owned by the same parent company.
Why does an estimate cost $1,000?
Providing a withdrawal liability estimate requires a non-trivial amount of time and effort from the Trust’s service providers. Some employers request an estimate infrequently; some every year. It is the Trustees’ opinion that this cost should be borne by the requesting employer instead of the Trust as a whole.