On December 16, 2014, President Obama signed into law the Consolidated and Further Continuing Appropriations Act, 2015 (“Omnibus Spending Bill”), which will fund government operations through September, 2015. Typically, the passage of a spending bill to fund the government and avoid a possible shutdown would have little impact on defined benefit multiemployer pension plans. However, a bipartisan amendment to the Omnibus Spending Bill was sponsored by Republican Congressman John Kline and Democratic Congressman George Miller to provide comprehensive multiemployer pension reform (the “Kline-Miller Amendment”). The Kline-Miller Amendment was ultimately attached to the bill, approved by Congress and signed by the President.

The primary goal of the Kline-Miller Amendment is to provide the trustees of severely underfunded multiemployer pension plans with the necessary tools to prevent these troubled plans from going insolvent and to also lessen the burden placed upon the Pension Benefit Guaranty Corporation (“PBGC”) that would result from such insolvencies. To this end, the Kline-Miller Amendment provides for the following:

• Permits trustees of severely underfunded plans to adjust vested pension benefits, enabling deeply troubled plans to survive without a federal bailout. In other words, the monthly pension benefit payable to certain retirees can be reduced; provided, however, retirees who are age 80 or over, or are receiving a disability pension, are not subject to any pension cuts. Further, retirees ages 75-79 are subject to smaller cuts than retirees under age 75.
• Requires approval by plan participants of any proposed benefit adjustments. However, this voting provision can be disregarded for so-called “systemically important plans.” Under the provisions of the amendment, a “systemically important plan” is a plan that the PBGC projects will require financial assistance that will exceed $1 billion if the plan becomes insolvent.
• Grants the PBGC the authority to take earlier action to help save failing plans, reducing potential future costs.
• Adjusts the PBGC insurance premium structure in order to place the PBGC on more firm financial ground. The multiemployer plan insurance premiums payable to the PBGC will be increased to $26 per participant per year in 2015, up from $12 per participant per year in 2014 (with indexing in future years).

Unfortunately, the Kline-Miller Amendment provides little relief with respect to the significant withdrawal liability obligations that continue to hang over the heads of numerous contributing employers.  In most situations, these withdrawal liability obligations which can often exceed the contributing employer’s net worth will basically remain unaltered under the legislation.

Relief to Contributing Employers:  The type of relief provided to contributing employers is limited to altering the manner in which withdrawal liability will be calculated. First, the Kline-Miller Amendment provides that any surcharges as mandated under the Pension Protection Act of 2006 or increased contribution amounts paid into a multiemployer plan pursuant to the terms of either a rehabilitation plan or funding improvement plan can be disregarded in calculating the withdrawal liability as owed by an employer. This would presumably result in a lower withdrawal liability assessment for a contributing employer.  However, the actual impact that this provision will have on the withdrawal liability as owed by a particular contributing employer will depend upon the unique facts and circumstances applicable to each employer – in some situations the relief provided by this provision may be significant and in other situations it may be very small.

The other type of relief as provided by the Kline-Miller Amendment is more long-term.  While the legislation allows for benefits to be adjusted and reduced by the trustees of certain severely underfunded multiemployer pension plans, the legislation also states that any such benefit reduction will be disregarded in calculating the withdrawal liability as owed by the employer - unless the withdrawal occurs more than 10 years after the effective date of the benefit adjustment. So, in other words, while the underfunded status of a plan should improve by cutting back on accrued pension benefits, the employer’s withdrawal liability is calculated as though the funded status of the plan has not improved, unless the employer withdraws from the Plan more than 10 years down the road.  Thus, the obvious purpose of this provision is to provide contributing employers an incentive to remain in a severely underfunded plan for the long haul.

Conclusion

The inclusion of the Kline-Miller Amendment within the Omnibus Spending Bill created sharp divisions between labor organizations.  Some unions supported the legislation as a difficult but necessary step to stave off the potential insolvencies of many underfunded plans, while other unions strongly objected to the likely reduction of the accrued monthly pension benefits as paid to retired union members.

On the other hand, employer organizations generally supported the legislation, although, as noted above in this Alert, the benefits provided to employers are very limited in scope and do little to address the potentially damaging withdrawal liability as owed by many employers. Of some comfort to employers is that certain contribution increases as required under either a rehabilitation plan or funding improvement plan will no longer be included in calculating withdrawal liability.  Further, improving the funding status of severely underfunded plans should also reduce the likelihood of mass withdrawals with respect to such plans.

It will be interesting to see if the new Congress that will assemble in January, 2015, will take the next step and address the ongoing threat that withdrawal liability has on both small and large employers who employee a unionized workforce and contribute to multiemployer defined benefit pension plans.