Multiemployer Plan Issues in the Pension Bill August 16, 2006

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Multiemployer燩lan營ssues爄n爐he燩ension燘ill August16,2006
Multiemployer燩lan營ssues爄n爐he燩ension燘ill
August16,2006
On燗ugust3,2006,燼爓eek燼fter燼pproval燽y
the燞ouse爋f燫epresentatives,爐he燯nited燬tates燬enate
passed爐he燩ension燩rotection燗ct爋f2006(PPA).牋President燘ush爄s爀xpected爐o爏ign爐he燽ill爄nto爈aw
tomorrow. As爊oted爄n the燣awFlash爓e燿istributed on燗ugust7爐itled燬weeping燩ension燫eform燘ill
Passed(
http://www.morganlewis.com/pubs/EB_LF_PensionReformBill_07aug06.pdf
),爐he爊ew爈aw
contains爏ignificant燾hanges爎elating爐o爎etirement爌lan爁unding燼nd爋perations.牋This燣awFlash爄s爐he
first爄n燼爏eries爃ighlighting爐he爌rincipal changes爄n爐he燩PA.
The燩PA燾ontains爏ignificant燾hanges爁or爉ultiemployer爌lans,爄ncluding燼爊ew爏ystem爁or爌lans爁acing
funding燿ifficulties,爐ightened爓ithdrawal爈iability爎ules,燼nd爏everal爊ew爎eporting燼nd燿isclosure
requirements.牋Most爋f爐hese爌rovisions爐ake爀ffect爁or爌lan爕ears燽eginning燼fter2007. The燩PA also
will爏ubstantially爄ncrease爄nteraction燽etween爐rustees爋f爑nderfunded爌lans燼nd爐he燽argaining爌arties.
FUNDING燝ENERALLY
The燩PA爎etains爐he爁unding爏tandard燼ccount燼pproach爑nder燾urrent爈aw.牋However,爊ew爌lan
liabilities燿ue爐o燽enefit爄ncreases燼nd燾hanges爄n燼ctuarial燼ssumptions爓ill爃ave爐o燽e燼mortized爋ver
15爕ears爄nstead爋f30,燼nd爏hort璽erm燽enefits,爏uch燼s13th燾hecks,爓ill爊eed爐o燽e爁unded燽y爐he
time爐hey燼re爁ully爌aid爋ut.牋Plans,爃owever,爓ill爊ot爃ave爐o爎ecalculate燼mortization爏chedules
already爄n爀ffect. In燼ddition,爐he燩PA爎aises爐he爈imit爋n燿eductions爁or爀mployer燾ontributions爁rom
100% to140% of燾urrent爈iability.牋It燼lso爀liminates爐he燾ombined燿efined燾ontribution/defined燽enefit
plan燿eduction爈imit爐hat燾urrently爎estricts爀mployer燾ontributions爐o燼燿efined燾ontribution爌lan.
Currently,爄f燼爉ultiemployer爌lan爃as燼n燼ccumulated爁unding燿eficiency爁or燼爕ear,燼n excise爐ax of
five爌ercent爂enerally燼pplies,爄ncreasing爐o100爌ercent爄f燾ontributions爏ufficient爐o爀liminate爐he
funding燿eficiency燼re爊ot爉ade爓ithin燼燾ertain爌eriod. While爐he燾urrent爉inimum爁unding燼pproach
will爎emain,爐here燼re爊ew爋ptions爐o燼void爁unding燿eficiencies燼nd爐o燿efer爋r燼void爐he爀xcise爐axes
that爓ould爋therwise燽e爄mposed.
Extension爋f爐he燗mortization燩eriod
Multiemployer爌lans爁acing燼爁unding燿eficiency爓ithin10爕ears爓ill燽e燼ble爐o爀xtend爐he
amortization爌eriod爁or爁unding爈iabilities爁or爑p爐o爁ive爕ears爓ith爉inimal營RS爎eview.牋To爍ualify,燼
Board爋f燭rustees(Trustees)爃as爐o燼dopt燼爌rogram爐o燾orrect爐he爌lans爁unding爏tatus,燾ertify爐hat爐he extension爓ill爎esolve爐he爁unding爌roblem,燼nd爌rovide爊otice爋f爐he爀xtension爐o燼ll燼ffected爌arties.
The營RS爃as燿iscretion爐o爂rant燼n燼dditional爁ive瓂ear爀xtension,爑nder爐he爏tandards爏et爁orth爄n
current爈aw.牋These爊ew燼mortization爀xtensions爓ill爌rovide爏omewhat爈ess爁unding爎elief爐han爑nder
current爈aw,爃owever,燽ecause爐he爈ower爄nterest爎ate燾urrently燼vailable爁or爀xtensions爋f燼mortization
periods爄s爀liminated,燼nd爐he爎egular爌lan爁unding爎ate爓ill燼pply.牋The爏pecial爎ate燾urrently燼vailable
will爏till燼pply爐o爀xtensions爂ranted爑nder燼pplications爐hat爓ere爁iled燽efore燡une30,2005.
Shortfall燜unding燤ethod
The燩PA燾odifies爑se爋f爐he爏hortfall method爐o爌revent爁unding燿eficiencies.牋Trustees爉ay爊ot
increase燽enefits爓hile爐he爏hortfall爉ethod爄s爄n爑se.
ADDITIONAL燜UNDING燫ULES燜OR燩LANS營N燛NDANGERED,燬ERIOUSLY
ENDANGERED,燨R燙RITICAL燬TATUS
The燩PA爌laces爐roubled爌lans爄nto爐hree爊ew燾ategoriesendangered爏tatus,爏eriously爀ndangered
status,燼nd燾ritical爏tatusand爄mposes爊ew爁unding爎equirements燼nd爋ther爎ules爋n爀ach,爄ncluding
some爎elief爁rom爀xcise爐axes爁or燼n燼ccumulated爁unding燿eficiency.牋A爌lans爏tatus爄s爂enerally燽ased
on funding爌ercentages燼nd爌rojected燼ccumulated爁unding燿eficiencies. A爌lan爄s爄n燾ritical爏tatus爄f it
satisfies燼ny爋ne爋f爐he爁ollowing爁our爐ests:(1)爄t爄s爈ess爐han65%爁unded,燼nd燼ssets爌lus燾ontributions
are爄nsufficient爐o爉ake燽enefit爌ayments爁or爐he燾urrent爕ear燼nd爐he爊ext爏ix爕ears;(2)爄t爓ill
experience燼爁unding燿eficiency爄n爐he燾urrent爕ear爋r爄n爐he爊ext爐hree爕ears(four爕ears爄f爈ess爐han
65%爁unded);(3)爄ts爊ormal燾osts爌lus爄nterest爀xceeds燾ontributions,爐he爌resent爒alue爋f燽enefits爁or
inactive爌articipants爀xceeds爐he爌resent爒alue爋f燽enefits爁or燼ctive爌articipants,燼nd燼爁unding
deficiency爄s爌rojected爓ithin爁ive爕ears;爋r(4)爄ts燼ssets爌lus爁ive爕ears爋f燾ontributions燼re爈ess爐han
five爕ears爋f燽enefits爌lus燼dministrative爀xpenses. A爌lan that爄s爊ot爄n燾ritical爏tatus燽ut爄s爈ess爐han
80%爁unded爋r爃as燼n燼ccumulated爁unding燿eficiency爄n爐he燾urrent爕ear爋r爄n燼ny爋f爐he爊ext爏ix爕ears
is爄n爀ndangered爏tatus; a爌lan爄s爄n爏eriously爀ndangered爏tatus爄f爄t爉eets燽oth of爐hese燾riteria.
Actuarial Certification
Within90燿ays燼fter爐he爏tart爋f爐he爌lan爕ear,爐he爌lans燼ctuary爉ust燾ertify爓hether爐he爌lan爄s爄n
endangered爋r燾ritical爏tatus爁or爐he爌lan爕ear.牋Failure爋f爐he爌lans燼ctuary爐o燾ertify爐he爏tatus of爐he
plan爄s爐reated燼s燼爁ailure爐o爁ile爐he燼nnual爎eport(which爉eans爐hat燼爌enalty爋f爑p爐o$1,100爌er燿ay
applies).
Trustees燚uties
Notify燩articipants,燘eneficiaries,燼nd營nterested燩arties
If燼爌lan爄s燾ertified爐o燽e爄n爀ndangered,爏eriously爀ndangered, or燾ritical爏tatus,爐he燭rustees爉ust
notify爐he爌lans爌articipants燼nd燽eneficiaries,燽argaining爌arties,爐he燩ension燘enefit燝uaranty
Corporation(PBGC),燼nd爐he燚epartment爋f燣abor(DOL)爓ithin30燿ays燼fter爐he燿ate爋f燾ertification.
The燚OL爄s爐o爌rovide燼爉odel爊otice. Develop燼燩lan爐o營mprove燜unding燬tatus
Trustees爉ust燼dopt燼燜unding營mprovement燩lan(FIP)爁or爌lans爄n爀ndangered爋r爏eriously
endangered爏tatus燼nd燼燫ehabilitation燩lan爁or爌lans爄n燾ritical爏tatus爓ithin 330燿ays燼fter爐he爏tart爋f
the爌lan爕ear. If爐he燭rustees爁ail爐o燼dopt爐he燼pplicable爌lan by爐he爀nd爋f爐he330th燿ay爋f爐he爌lan
year,燼爌enalty爋f爑p爐o$1,100 per燿ay燼pplies燼gainst爐he燭rustees. Both燼n FIP燼nd燼燫ehabilitation
Plan consist爋f爋ptions爐o燽e爌roposed爐o爐he燽argaining爌arties爐hat燼re燿esigned爐o燽ring燼爌lans
funding爑p爐o燾ertain燽enchmark爈evels燽y爐he爀nd爋f爐he燼pplicable爌eriod(Funding營mprovement
Period爁or爌lans爄n爀ndangered爋r爏eriously爀ndangered爏tatus,燫ehabilitation Period爁or爌lans爄n燾ritical
status).
For爌lans爐hat燼re爄n endangered爏tatus,爐he燜IP爉ust燼void燼爁unding燿eficiency爁or燼ny爕ear燿uring爐he
Funding營mprovement燩eriod燼nd爎educe爐he爌ercentage爋f爑nderfunding燽y爋ne璽hird燽y爐he爀nd爋f爐he
Funding營mprovement燩eriod.牋Plans爄n爏eriously爀ndangered爏tatus爉ust燼void燼爁unding燿eficiency爁or
any爕ear燿uring爐he燜unding營mprovement燩eriod燼nd爎educe爐he爌ercentage爋f爑nderfunding燽y 20%
over燼15瓂ear爌eriod. A燫ehabilitation燩lan爉ust燽e燿esigned爐o爃ave燼爌lan爀merge爁rom燾ritical
status燽y爐he爀nd爋f爐he燫ehabilitation Period. If爐he燭rustees燿etermine爐hat爄t爄s爊ot爎easonable爐o
expect爐hat爐he爌lan爓ill爀merge爁rom燾ritical爏tatus燽y爐he爀nd爋f爐he燫ehabilitation Period,爐he
Rehabilitation燩lan爉ust爄nclude爉easures爐o爀merge爁rom燾ritical爏tatus燼t燼爈ater爐ime爋r爐o爁orestall
possible爄nsolvency.
The燜unding營mprovement燩eriod燼nd爐he燫ehabilitation燩eriod燼re10瓂ear爌eriods爐hat燽egin燼fter爐he
earlier爋f either(1)爐he爏econd燼nniversary爋f爐he燼doption爋f爐he燜IP爋r燫ehabilitation燩lan or(2)爐he
expiration爋f collective燽argaining燼greements(CBAs)爐hat爓ere爄n爀ffect爓hen爐he燼ctuarial
certification爓as燿ue,燼nd爐hat燾over燼t爈east75% of爐he爌lans燼ctive爌articipants燼t爐hat爐ime.牋It爄s
possible爁or爐he燜unding營mprovement燩eriod爋r燫ehabilitation燩eriod爐o燾ommence燽efore燼n燜IP爋r
Rehabilitation燩lan爄s燼dopted.牋These爌eriods爉ay爈ast爁ewer爐han 10爕ears爄f爌lans燼re爊o爈onger爄n
endangered爋r燾ritical爏tatus.燭he燜unding營mprovement燩eriod燼lso爀nds爄f燼爌lans爁unding
deteriorates爁rom爀ndangered爏tatus爐o燾ritical爏tatus.
Reduce燗djustable燘enefits
The燩PA爌rovides爐hat,燿espite爐he燼nticutback爎ules,爐he燭rustees爉ay爎educe燼djustable燽enefits
provided燽y爌lans爄n燾ritical爏tatus爄f爐hey燿eem爎eductions爐o燽e燼ppropriate,爏ubject爐o爐he爋utcome爋f
bargaining爋ver爐he爏chedules爌rovided燽y爐he燭rustees.牋Adjustable燽enefits爄nclude(1)燽enefits燼nd
features,爄ncluding爌ost璻etirement燿eath燽enefits,燿isability燽enefits爊ot爄n pay爏tatus,燼nd爏imilar
benefits;(2)燼ny爀arly爎etirement燽enefit爋r爎etirement璽ype爏ubsidy燼nd燼ny燽enefit爌ayment爋ption
(other爐