Effects of Liabilities Assessed Employers Withdrawing From Multiemployer Pension Plans

HRD-85-16: Published: Mar 14, 1985. Publicly Released: Mar 14, 1985.

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GAO reviewed the implementation and effects of the withdrawal liability provisions of the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) on those multiemployer plans not covered by the special rules or exemptions that apply mainly to construction and entertainment industry plans.

The Pension Benefit Guaranty Corporation (PBGC) administers an insurance program for private pension plans and guarantees the payment of certain benefits to the participants of the plans if a plan terminates without sufficient assets to provide vested benefits, called withdrawal liability. Prior to MPPAA, employers could withdraw from a plan without any continuing obligation; now they are required to pay an allotted portion to the plan's unfunded vested benefits. GAO found that MPPAA eliminated or reduced the effects of withdrawal liability by providing limits on the collection of liabilities from individual employers. GAO also found that the determination of appropriate interest rates was complex because the assumptions should reflect the long-term expectation of rates of return on the investment of plan assets held by the plan. GAO believes that there is a need to monitor determinations of withdrawal liability by multiemployer plans and to consider the issuance of regulations on actuarial assumptions. MPPAA set forth four methods used in allocating a plan's unfunded benefits to withdrawing employers and, depending on the method selected, the amounts allocated may differ between new and current employers or between growing and declining employers. GAO believes that MPPAA-imposed liability increases the pension security of participants in poorly funded plans and provides protection against the insolvency of the PBGC insurance fund by reducing the contingent liability against the program resulting from poorly funded plans.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: As of January 20, 1987, no action had been taken on this recommendation. Follow-up on this recommendation should be discontinued and follow-up on recommendations to Congress will be considered satisfied when they have not been acted on over four follow-up cycles.

    Matter: To better protect the financial condition of plans against declines in contributions by major employers, Congress may wish to consider amending MPPAA to revise the partial withdrawal liability rules to allow all plans to adopt an option similar to the 35-percent rule now available to retail food industry plans.

  2. Status: Closed - Implemented

    Comments: As of January 20, 1987, no congressional action had been taken on this recommendation. However, on December 31, 1986, PBGC published a Notice of Interpretation stating that it had reconsidered its previous opinion and concluded that a fully funded plan does not have a right to assess withdrawal liability. Therefore, the recommendation has been implemented by regulation.

    Matter: Because the application of withdrawal liability in fully funded plans does not seem to have been contemplated under MPPAA, Congress may wish to consider amending MPPAA to exempt employers in fully funded plans from withdrawal liability.


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