After a 2 1/2-year review, the Pension Benefit Guaranty Corp. has agreed to assume administration of the underfunded pension plan for the United Way for Southeastern Michigan and numerous other non-profit employers.
The move ensures the plan's 1,572 vested participants will all receive the maximum benefits under federal law.
But it doesn't erase liabilities for the 18 non-profit employers that remained in the plan until its termination in March 2010 — or for those employers that were in the plan for the five years prior to that termination, the PBGC said.
There were at least 31 agencies in the plan during those five years, according to reports from Crain's Detroit Business, a sister publication of Pensions & Investments. The PBGC is covering the plan's shortfall of nearly $24 million. But it will seek to recover that amount, collectively, from the employers that contributed to the plan within five years of its termination.
The agency also plans to seek termination premiums of $1,250 per participant from the employers, adding up to about $2 million for three years, which will help cover its costs to administer the plan.
But the employers won't have to make up what others don't or can't pay, the PBGC said, adding that it often settles with employers based on their ability to pay.
The pension plan, formally known as the Employee Benefit Plan for United Way for Southeastern Michigan and Affiliated Agencies, had assets of $29.8 million when it was terminated. It was underfunded by $23.6 million, the PBGC said.
Detroit-based United Way, the plan's former administrator, deferred all comment to the PBGC.
But in a July 3 letter sent to employers that were participants in the plan during the past five years, United Way said the decision to file was driven in part by the financial distress the plan was under and the difficulty that participating agencies were having in keeping the plan fully funded.
“We believed this was the best course of action to attempt to preserve most of the benefits the participants in the pension plan were owed,” United Way CEO Michael Brennan said.
Established in 1945 by United Community Services, which merged with United Way in 1995, the United Way pension plan was formed to lessen administrative costs and improve benefit coverage for smaller non-profits.
It had been adequately funded until 2004, but poor market returns and declines in interest rates increased agency liabilities.
In March 2005, United Way froze the plan, preventing further accrual of benefits and the addition of new employees.
By the end of 2006, United Way and its predecessor organization, United Community Services, had the largest liability, owing a shortfall of $4.16 million, or 18.5% of the total liability.
Between 2005 and July 2008, 20 agencies disaffiliated, creating mirror plans to cover current and former employees.
Another five non-profit employers withdrew from the plan over the same period, paying their liabilities and leaving their past and present employees as “orphans” in the plan.
Sherri Welch is a reporter at Crain's Detroit Business, a sister publication of Pensions & Investments