New rules proposed by the Department of Labor and Financial Accounting Standards Board will begin to open a crack in the opaque shell of multiemployer plans, but they don't go as far or as fast as they should.
The need for more disclosure is apparent: the pension liability some companies face in multiemployer plans can be immense. Investors and even company executives themselves often don't have timely details to assess the extent of the multiemployer liabilities, especially their obligation for shortfall liability from participating employers that fail to make their required contributions.
YRC Worldwide Inc., a major trucking company whose units include Yellow Transportation Inc. and Roadway Express Inc., said in its 10-K report, for the year ended last Dec. 31, multiemployer plans do not routinely provide us with current information regarding the status of each multiemployer pension plan's funding ... the information that we are providing in this Form 10-K regarding the funding status, funded percentage or our portion of multiemployer plan theoretical withdrawal liabilities is based on publicly available information, which is often dated ...
YRC estimated its total contingent withdrawal liability from multiemployer pension plans at $4 billion. Not all companies are as frank as YRC about lacking the information to make accurate disclosure about their multiemployer plan liabilities.
Under current FASB rules, corporations treat multiemployer plans like defined contributions, essentially requiring disclosure of only the amount contributed.
Disclosure about multiemployer plans typically isn't even in the pension note in a 10-K financial statement, the logical place for it.
Corporations make no disclosure about the quality of multiemployer assets or term structure of their liabilities. For single-employer-sponsored plans, FASB requires disclosure of asset allocation, which would become even more detailed under a pending proposal.
Lack of transparency by multiemployer plans keeps corporations from making better disclosure about the risks of their pension liabilities.
A pending Labor Department regulation, designed to implement a provision of the Pension Protection Act of 2006, would require multiemployer plans to provide certain periodic actuarial and financial reports to participating employers upon request. Right now, multiemployer plans don't typically share this information, regarding it as privileged management information. The DOL proposal isn't related to form 5500, a filing requirement to report details on pension plans. In regard to the form 5500, the DOL should speed up its filing and its availability for public access, which at present can be almost two years after the reporting date.
Standard & Poor's, in an assessment of United Parcel Service Inc.'s multiemployer liability, had to rely on information almost two years old, which leads to stale misleading estimates especially in declining markets that adversely impact assets and liabilities.
Better disclosure is critical for investors. Some multiemployer plans like the Central States, Southeast and Southwest Areas Pension Fund are severely underfunded. Because multiemployer plans pool liabilities, contributing employers are jointly liable for the underfunding caused by other participating employers who may be unable to make their contributions.
A proposal by FASB would speed up reporting of potential withdrawal liability of some companies through loss contingency disclosure. FASB, as part of its pending phase 2 of its pension accounting overhaul, plans to address disclosure of multiemployer plan risk exposure, which could lead to much-needed improvement in such disclosure, but completion of that project might take another two or three years.
FASB ought to take up a project now to integrate multiemployer data with the pension note in financial reports. Adding multiemployer plans to pension accounting rules as soon as possible will mean that much less work FASB will have to do in phase 2.
Tougher, requirements by the DOL and FASB should lead multiemployer plans to more quickly report to employers audited plan information, so it can be incorporated in detail into corporate financial reports. Speeding the flow of information won't be easy. Unlike single-employer plans where one sponsor controls the information, multiemployer plans deal with lots of employers.
Requiring a change in contribution timing and better data for estimates will improve timely risk disclosure. All these steps need to be taken, rather than leave the risk virtually blank as companies generally do now.