Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. ASSET OWNERS
September 03, 2012 01:00 AM

A new pension model

  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Roger Schillerstrom

    The multiemployer model is dead. Long live the multiemployer model.

    That message is the essence of a new agreement between United Parcel Service Inc. and the $2.6 billion New England Teamsters & Trucking Industry Pension Fund. The agreement should serve as a model for troubled multiemployer plans to consider as a way to restore their viability.

    The agreement creates a new model for the New England Teamsters fund, breaking away from the traditional multiemployer framework that has been based on the proposition: from each according to his ability and to each according to his need. That model sows seeds of trouble.

    Under the agreement, UPS will withdraw from the New England Teamsters fund, paying $1.2 billion in withdrawal liability. And, the company and fund agreed to create a new structure for future benefit accruals in which all employers that join the new fund will be liable for only their own employee pension benefits.

    Under the current multiemployer structure, employers share a collective liability. When participating employers face financial challenges and fail to contribute, the rest of the employers have to pick up the slack. In failing industries, a plan eventually consists of fewer and fewer employers, putting ever more funding obligations on the shoulders of stronger employers, while making the pensions of participants less secure.

    When a large, strong employer like UPS is participating, the plan can become increasingly dependent on that employer, which then bears an increasing burden, often paying the pensions of participants who never worked at the company. At the same time, the growing burden on the employer puts at risk the retirement security of its own employees.

    Such a structure doesn't provide the diversification or reserve funding necessary to better secure coverage. When it breaks down, that model is fair to neither employers nor employees, and is not a sustainable system for groups of employers in financially troubled industries.

    That lack of fairness and sustainability was recognized both by the agreement between UPS and the New England Teamsters, and an August decision in the U.S. 2nd Circuit Court of Appeals that ruled the Pension Protection Act of 2006 doesn't prohibit an employer from leaving a multiemployer plan that is in critical status, defined by the PPA as less than 65% funded.

    Even the Pension Benefit Guaranty Corp. recognizes the challenges of insuring multiemployer plans, offering a lower level of coverage than for single-employer plans.

    In multiemployer plans, for someone with 30 years of service, the PBGC maximum guaranteed pension benefit is $12,870. For single-employer programs, the PBGC maximum guaranteed pension is $55,840.92 a year at age 65.

    In addition, the PBGC doesn't assume the assets and liabilities of multiemployer plans that are unsustainable or terminated, as it does for single-employer plans.

    The multiemployer plan is worth saving because it provides a collective arrangement to enable smaller employers an affordable mechanism to offer defined benefit plans, while allowing participants who might frequently change employers within the same industry to enjoy portability of their defined benefits.

    The New England Teamster and UPS agreement could serve as a model for a modified multiemployer program.

    The existing multiemployer model works in many instances, notably the Western Conference of Teamsters Pension Plan, which has been a strong, well-managed program. In fact, with $30.1 billion in assets, it is the largest Taft-Hartley multiemployer plan. It was 90.3% funded as of Jan. 1, according to a report by McGinn Actuaries Ltd., the plan's consulting actuarial firm.

    But size is not a shield against unsustainability. The second largest multiemployer plan, the $16.5 billion Teamsters Central States, Southeast and Southwest Areas Pension Plan, is in critical status as defined by the PPA. The New England Teamsters plan is also one of the largest multiemployer plans and also in critical status.

    (In its latest report, issued in spring 2011 and involving only its clients, Segal Co. found that of 227 multiemployer plans, 66% were certified at least 80% funded; 10% were in endangered status, or funded between 65% and less than 80%; and 24% were in critical status.)

    The new structure does nothing to restore the financial health of the existing New England Teamsters fund, and the departure of UPS could likely worsen its finances. UPS will pay its $1.2 billion in withdrawal liability in installments for 50 years.

    The only way for the existing fund to meet its liabilities relies on both a vibrant economy and creative management at the troubled participating employers to revive their competitive positions in the marketplace so they can afford their pension contributions.

    But the modified structure offers a way forward that continues to embrace the multiemployer ideals of providing a way for smaller employers to afford a defined benefit program and portability to participants. n

    Related Articles
    Appellate court: Company can withdraw from multiemployer pension fund
    UPS to leave New England fund, strikes new funding deal
    UPS, Teamsters wrap up liability withdrawal agreement
    Recommended for You
    FTX_Screen_i.jpg
    FTX bankruptcy ensnares Kraft, Och and other family offices
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    Morningstar Indexes' Annual ESG Risk/Return Analysis
    The Future of Infrastructure: Building a Better Tomorrow
    Outlook 2023: Opportunity in a volatile world
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing