Multiemployer Pension Plans: Complexities and Opportunities
Since their creation under the Labor Management Relations Act of 1947 a/k/a Taft-Hartley Act, multiemployer pension plans have become a widespread benefit plan option, found in industries as varied as construction, the arts, mining, transportation, and communications. Generally established by a labor union and an industry or trade group to cover workers from two or more related employers, employers agree to fund these plans with contributions to a pension trust fund. Although multiemployer pension plans have broad appeal due to their pooled resources and risk, portability (members can retain service if they switch from one contributing employer to another within the same plan), and a full complement of tax-free benefits, they are inherently complex and require specialized management and oversight.
Multiemployer Pension Plans – An Overview
Most multiemployer plans are administered and governed by a board of trustees, with equal representation by labor and management. Contributions are collectively bargained, and workers generally forgo some direct compensation or accept a reduction to another employee benefit in exchange for contributions to retirement income plans. In turn, employers are obligated to fund the benefits in accordance with their collective bargaining agreements as well as the Employee Retirement Income Security Act (ERISA).i In 2019, the SECURE Act made multiemployer plans easier to establish by eliminating the unified plan rule and exempting smaller plans from certain audit requirements.
Like many single-employer plans, multiemployer plans are subject to many vesting, accrual, and minimum participation rules although there are differences in plan design. Many multiemployer plans are “unit benefit” plans that offer a specified dollar-amount benefit per month multiplied by years of credited service. Some plans offer a choice of enhanced benefits to employees whose employers agree to pay higher contributions.
Another issue specific to today’s multiemployer pension plans is that due to generational shifts, many are often paying substantially more in benefits to retirees than the income they are receiving. Today’s roughly 1,400 multiemployer plans cover more than 10 million people, and approximately 1 million are in 100 plans that are projected to be unable to pay the full benefits that have been promised.ii To address some of these funding shortfalls, Congress established a new process under the Multiemployer Pension Reform Act of 2014 (MPRA) for trustees of multiemployer plans to propose a temporary or permanent reduction of pension benefits if a plan is projected to run out of money before paying all pension benefits.iii Future legislation may potentially provide temporary or permanent reprieves from benefits payments to keep struggling plans solvent.
Considering these many complexities, multiemployer pension plans need a core administration solution that is specifically designed for their unique administration and operational needs. They also require a highly-configurable system that enables substantial functional fit for all constituents, along with integrated workflows, full data attribute reporting capability, and other advanced digital features to manage their many intricacies.
Ideal Multiemployer Pension Plan Management Approaches
A platform with a fully automated system, to process across multiple plans, complicated data, and contractual rules that can reduce operational efficiency is a welcome opportunity for today’s extensive multiemployer pension plans. Capabilities for data loading, scrubbing, and comparison, are other features to consider, in addition to intuitive digital self-service, with viewing options for balances, historical data, documents, and contacts to enhance the customer experience. A system that can integrate with workflows, campaign management, correspondence, and extensive APIs to streamline business processes and share tools that provide data across all administrative departments can significantly reduce operation expenses. A robust rules engine for eligibility for specific benefits and automated benefit calculations provides important flexibility.
Multiemployer pension plans remain widespread retirement plan offerings, with such advantages as pooled risk, portability, and a complete slate of tax-free benefits. However, with many vesting, accrual, and minimum participation rules as well as potential legislation to address future funding shortfalls, multiemployer pension plans need a modern and advanced system to support their inherent complexities. A robust platform with seamless digital self-service, enhanced reporting and calculation features, and flexible configuration to handle potential funding and payout revisions can provide a welcome opportunity for superior multiemployer pension plan servicing.
To see how Vitech’s V3locity solution can enhance your defined benefit, multiemployer pension plan, cash balance plan, or PRT operations, click here.
i Overview of Multiemployer Pension System Issues Issue Brief, American Academy of Actuaries, June 2017
iii Introduction to Multiemployer Plans, Pension Benefit Guaranty Corporation, September 2021