Multiemployer pension plans are a significant component of the retirement system for unionized workers. These plans were created pursuant to the Taft-Hartley Act and offer benefits to millions of workers including: health, retirement, life insurance, training, legal services, etc.
First, lets define a multiemployer plan. A multiemployer plan is a collectively bargained plan maintained by more than one employer, usually within the same industry, and a labor union. These plans are often referred to as “Taft-Hartley Plans.” Employers are obligated to fund benefits in accordance with their collective bargaining agreements. Like other benefit plans, multiemployer plans are required to follow the provisions of the Employee Retirement Income Security Act (ERISA). A multiemployer plan may be a defined benefit, defined contribution or hybrid plan.
Most multiemployer plans are administered and governed by a board of trustees with labor and management equally represented. The trustees are fiduciaries under ERISA and must act in the sole interest of the plan and its participants and beneficiaries, regardless of who elects or appoints the trustee.
In a multiemployer plan, contributions are collectively bargained and workers often decline some direct compensation in exchange for contributions to the benefit plans. Defined benefit pension plan participants do not make investment decisions whereas defined contribution plan participants often do. The assets of a defined benefit pension plan are maintained in a qualified trust, and plan trustees hire investment professionals to assist with the management of the investment portfolio and investment policy of the plan. Defined benefit retirement plans must pay annual premiums to the Pension Benefit Guaranty Corporation (PBGC). In the event of a plan failure, PBGC financial support may be available which is subject to the PBGC guaranteed benefit levels. However, these are often much lower than the underlying benefits payable from a troubled plan. PBGC coverage requirements are determined by ERISA.
For a multiemployer pension plan, contributions made by employers on behalf of specific employees are used to provide pension benefits to all plan participants; now and in the future.
Vesting decisions and timetables also play a large role in the pension plan process. Vesting is defined by the duration of participant’s years of covered service working for a specific employer. However, vesting requirements may vary by plan. Once a participant is vested, the participant has earned a pension benefit that is expected to be paid at retirement.
Pension benefits are calculated based on different criteria such as:
- The employee’s years of service at a specific company or organization
- The employee’s age
- The employee’s annual compensation
In conclusion, a multiemployer pension plan offers a retirement benefit for workers whose employers are required to contribute to a collectively bargained plan.
Author: Fabricia Edwards, CPA | [email protected]
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