March 27, 2020
Authored by: Adam Braun, Lisa Van Fleet and Kyle Flaherty
The COVID-19 pandemic has had a significant financial impact on business and individuals around the globe, with global financial markets seeing significant drawbacks in March 2020 alone. That impact has also been felt by U.S. employers who contribute to multiemployer pension plans, as well as the plans themselves. Below are a few issues that U.S. contributing employers to multiemployer pension plans should keep in mind in these volatile times:
- Consequences of Changes in Funded Status. Even before the COVID-19 pandemic, many multiemployer pension plans were operating in critical or critical and declining funded status, and the market fluctuations as a result of the COVID-19 pandemic will only exacerbate those funding shortfalls. Contributing employers should anticipate that those shortfalls may result in additional surcharges becoming payable on their monthly contributions (as a result of the Pension Protection Act of 2006) as well as increased estimates of potential withdrawal liability.
- Withdrawal Liability. With many contributing employers implementing layoffs or other workforce reductions, there may be questions as to whether such reductions may result in withdrawal liability under the applicable multiemployer pension plan. Withdrawal liability is due upon a complete or partial withdrawal from a multiemployer pension plan. A complete withdrawal occurs when a contributing employer permanently ceases all operations covered by the plan or no longer has an obligation to contribute under the plan. Therefore, layoffs and/or temporary shutdowns should not trigger complete withdrawals unless and until those layoffs and shutdowns become permanent. Partial withdrawal occurs upon a 70% contribution decline