Compensation and Working Conditions Spring 1999 19

Multiemployer Pension Plans

HARRIET WEINSTEIN

WILLIAM J. WIATROWSKI

Multiemployer

Pension Plans

Multiemployer retirement plans are designed for workers

in industries where it is common to move from employer

to employer; unique features of this type of plan reflect

the transient nature of the work.

Harriet Weinstein and William J. Wiatrowski

are economists in the Division of Compensation

Data Analysis and Planning, Bureau of Labor

Statistics. Cathy A. Baker, in the same office,

provided tabulations for this article.

Telephone: (202) 606-6237

E-mail: Weinstein_H@bls.gov

Wiatrowski_W@bls.gov

The nightly news often introduces viewers to little-knowntopics, such as scud missiles

and junk bonds. When discussing labor issues in recent years, one obscure

topic that garnered attention was

multiemployer pension plans. In the

1997 labor dispute between the United

Parcel Service and the Teamsters, the

future of contributions to a multiemployer pension plan was a key issue.

In addition, multiemployer pension

plans were debated as part of the recent Teamsters’ election.1

This article uses data from the Bureau of Labor Statistics’ Employee

Benefits Survey and other sources to

provide a background on multiemployer pension plans. What are these

plans? Whom do they cover? How

did they develop and what regulations

control them? What are the unique

features of these plans and how do

these features differ from other pension plans?

What is a multiemployer pension

plan?

Multiemployer pension plans cover

workers from more than one employer.

This is in contrast to the traditional

company pension plan, which covers

workers from just one employer (single

employer plans). Multiemployer pension plans have a specific definition

under the Labor Management Relations Act of 1947, known as the TaftHartley Act. Under Taft-Hartley, a

multiemployer pension plan is established by negotiating an employer contribution as part of a labor-management agreement and establishing a

trust fund. Then, labor organizations

bargain with additional employers to

have workers covered by these plans.

Employer contributions, determined

by collective bargaining, fund the

multiemployer pension plans.

A Taft-Hartley multiemployer pension plan is characterized by provisions allowing individual employees

to gain credits toward pension benefits

from work with multiple employers,

as long as each employer has a collective bargaining agreement requiring

plan contributions. Often, many employers in the same industry in a geographic area contribute toward the

same multiemployer plan. Thus, individual workers moving from job to

job continue to earn credits toward

future pension benefits.
20 Compensation and Working Conditions Spring 1999

Who is covered by multiemployer

plans?

Multiemployer pension plans are

found in private sector industries that

are usually characterized by small employers and workers who switch employers frequently, generally, as in the

case of construction, moving to where

the work is. Among construction industry workers, the median tenure with

an employer in February 1998 was 2.7

years, compared with 3.6 years for all

workers.2 In addition, about 83 percent of construction establishments

employ fewer than 10 workers; less

than 1 percent of construction establishments employ 100 workers or

more.3

In addition to construction, other

industries that tend to have workers

covered by multiemployer pension

plans are trucking, garment manufacturing, and grocery stores. Again,

these industries tend to be characterized by small employers whose workers move from job to job. Among the

largest multiemployer pension plans

in the country are the Teamsters’ National Master Freight Agreement for

the Central States, Southeast, and

Southwest areas; the United Food and

Commercial Workers’ pension plan;

several construction trades’ plans

(such as carpenters, electricians, and

plumbers); and the Union of

Needletrades, Industrial and Textile

Employees’ plan.

Other multiple employer pension

plan arrangements exist. For example,

employees of all companies that were

once part of Bell Telephone have an

agreement whereby service in all companies is counted toward a single pension benefit.

There are some multiemployer pension plans that are not negotiated with

a union. One of the largest of these

plans (TIAA-CREF4 ) was established

primarily for college teachers. In addition, some small employers have also

banded together to provide pension

benefits to their workers. Such arrangements are not Taft-Hartley

multiemployer pension plans. They

exist for ease of administration, not as

part of collective bargaining.5

Multiemployer versus single employer plans: An overview

Most retirement plan participants are

covered by single employer plans. The

number of multiemployer plans is low,

although some can cover large numbers of workers. According to tabulations compiled from forms filed by

employers with the Internal Revenue

Service, in 1994 multiemployer plans

accounted for less than 3 percent of

defined benefit pension plans, but covered 20 percent of the 40 million workers with defined benefit pension

plans.6

Three out of five multiemployer

plans are defined benefit pension

plans, which legally obligate employers to pay retirees an annuity at retirement age, based on a formula specified in the plan. These plans cover

about 80 percent of participants in

multiemployer plans. Multiemployer

retirement plans may be defined contribution retirement plans, either instead of or in addition to defined benefit pension plans. Defined contribution retirement plans usually specify

the level of employer contributions to

the plan but not the actual benefits that

will be paid upon retirement.

In 1994, multiemployer defined

contribution retirement plans covered

over 2 million workers, primarily in

the construction industry. Almost all

were money purchase plans. These

plans establish a fixed employer contribution to individual employee retirement accounts, usually based on a percent of employee’s earnings. At

retirement, the accumulated funds

(contributions and investment earnings) are used to purchase an annuity

or provide for some other form of retirement income. These multiemployer defined contribution plans differ substantially from the usual single

employer defined contribution plans,

which are generally savings and thrift

plans. Under such plans, employees

are given the opportunity to save some

of their earnings prior to taxation, with

the employer matching some part of

that savings. Multiemployer plans

rarely include an employee savings

feature.7

History of multiemployer plans

The first union-sponsored benefit fund

predates the passage of Taft-Hartley

by 80 years. The Cigar Makers Union

established the first fund in 1867.

This and other funds that were established at the end of the 19th century

were not the product of collective bargaining agreements. Solely administered by the unions, these funds served

several functions that strengthened

union power. The government did not

heavily regulate these funds, so the

union could readily access them in an

emergency, such as a strike. They also

helped to ensure allegiance to the

union, since death benefits or pensions

were restricted to members in “good

standing.” The availability of future

benefits was often used as a strong argument to convince union members

not to cross the picket line.8

Union pension plans grew in the

first two decades of the 20th century,

but were decimated by the Great Depression of the 1930s, when more immediate needs surpassed the desire to

provide for future retirement income.

The passage of the Social Security Act

of 1935 temporarily addressed the

need for old age assistance, but there

was renewed interest in pension plans

in the 1940s. The following Federal

Government taxation policies and efforts to curb inflation, both during and

after World War II, encouraged the

formation of pension plans.

• Favorable tax regulations made

pension plans less expensive for

employers by allowing them to

deduct, as a business expense,

contributions made to pension

plans when computing their tax

returns.

• Wage stabilization efforts imposed a ceiling on wage increases

to reduce inflationary pressures,

but employee benefits, including

pensions, were exempt.

• A 1948 National Labor Relations Board (NLRB) ruling re-
 Compensation and Working Conditions Spring 1999 21

Multiemployer Pension Plans

quired employers to bargain for

pensions and other benefits.

• In the Inland Steel decision,9 the

NLRB held that pension and insurance benefits were mandatory

subjects of collective bargaining.

The Bureau of Labor Statistics has

done occasional studies of multiemployer pension plans, generally tracking their prevalence and reporting on

plan features. Only a few multiemployer pension plans existed before the

Taft-Hartley Act was passed. Plans

grew in prominence during the 1950s

and 1960s. Such plans covered about

1 million participants in 1950, 3.3

million in 1959, 7.5 million in 1973,

and 10.4 million in 1989. Throughout the 1990s, the number of workers

in such plans has been steady at just

over 10 million.

Current regulations

Multiemployer pension plans are officially “jointly administered labor-management pension plans” or negotiated

multiemployer pension plans. Multiemployer pension plans are established

by first negotiating an employer contribution as part of a labor-management agreement and subsequently appointing labor-management trustees

(the number of trustees representing

labor and management must be equal)

to adopt a trust agreement and establish and administer a trust fund.

A multiemployer plan must conform to section 302(c)(5) of the TaftHartley Act, which makes it illegal for

employers to provide and union representatives to receive money or anything else of value. However, in the

case of a multiemployer plan, a retirement trust fund is exempt from this

section if: (1) Payments are held in

trust; (2) the basis of payments is found

in a written agreement; (3) labor and

management have equal representation in administering the fund; (4)

there is an annual audit; and (5) the

fund is separate from other monies,

and is used solely for providing pensions.

The relationship between employer

contributions and plan benefits in a

multiemployer defined benefit pension

plan is different than that found in

other plans. In general, labor and

management will negotiate a contribution and a certain benefit level.

Unlike a single employer plan, the

contribution cannot be changed between contracts to accommodate deficits or surpluses; negotiated contributions must be sufficient to pay future

benefits.

Plan features

The Bureau of Labor Statistics publishes annual data on the details of

employee benefit plans. From the

1995-96 data for private sector establishments, separate tabulations were

produced to compare single employer

and multiemployer defined benefit

pension plans. The results indicate

some unique provisions in

multiemployer plans, generally designed to accommodate the working

arrangements of employees covered by

these plans. The following tabulation

shows the percent of private industry

full-time employees covered by defined

benefit pension plans with selected

provisions during 1995-96.

When reviewing multiemployer

plans, or comparing such plans to

single employer plans, the most interesting provisions relate to time and

service. Because individuals covered

by a multiemployer plan by definition

can receive credits toward the plan

from more than one employer, there

is much discussion of service in these

plans. Defined benefit pension plans

base benefits on length of service, rewarding those with long service. Such

plans are usually not advantageous for

employees in industries characterized

by frequent job switching, such as construction. Under a single employer

defined benefit plan, a worker would

usually have to be with the employer

at least 5 years to become vested, that

is, to earn a guaranteed right to future

benefits, regardless of future tenure.

In addition, the timing of retirement

and the amount of retirement benefits

are both geared toward long service

and not conducive to job switches.10

Multiemployer plans eliminate

many of these issues by considering

service with multiple employers under

the same plan as if the individual had

worked with one employer the entire

time. For example, service sufficient

to meet vesting requirements may be

obtained by working under the plan

with one or many employers.11 Similarly, service required to be eligible to

retire is dependent upon service under the plan, not service with any particular employer. Finally, benefit

amounts are rarely based on earnings,

thus avoiding the possibility of being

penalized for moving from a high-paying to a lower-paying employer. In

general, the key variable in pension

calculations under a multiemployer

defined benefit pension plan is overall service under the plan.

Furthermore, multiemployer plans

tend to be less strict about initial eligibility for the plan than do single

employer plans. About half the par-

 Total with defined benefit plan .................................. 100 100

Benefits based on earnings ............................................. 77 -

Benefits based on dollar amount formula ......................... 18 65

Benefits integrated with Social Security ........................... 56 4

Benefits subject to maximum ........................................... 37 29

Early retirement benefits available ................................... 95 98

Disability retirement benefits available ............................. 69 91

Portability provisions ....................................................... 3 60

Lump-sum postretirement survivor benefits..................... 6 16

Lump-sum pre-retirement survivor benefits ..................... 1 11

Full pension restored if spouse predeceases retiree ....... 11 31

Survivor benefit for children ............................................. 23 57

 NOTE: Dash denotes less than 0.5 percent.

Percent of

employees in

single employer

plans

Percent of

employees in

multiemployer

plans

Provision
22 Compensation and Working Conditions Spring 1999

ticipants covered by multiemployer

plans are not required to meet a minimum age or service period to be eligible to participate in the plan, compared with one-fourth of those under

single employer plans.

Given the transitory nature of the

employer-employee relationship of

those participating in multiemployer

plans, it is not surprising that their

pension plans usually address the issue of interruptions in employment

and its effect on vesting and benefits.

For example, one plan states:

There may be times in your work

history when your employment under the plan is interrupted by a break

in service.... If you experience a

Break Year after 1975, you will incur a break in service. A Break Year

means a Plan Year during which you

are a participant in the plan and are

credited with less than one-twelfth

of a year of Pension Service and less

than 500 hours of Vesting Service.

Several plan provisions spell out the

specifics of the impact of such a break

in service, differentiating between covered employees who are and are not

already vested, as well as exceptions

to these rules stemming from a disability or pregnancy.

A distinguishing characteristic of

multiemployer plans is the prevalence

of portability provisions. These provisions allow participants to transfer

years of credited service or accumulated benefits from one plan to another.

This feature goes beyond the basic

premise of the multiemployer plan,

whereby different employers provide

contributions to the same plan. Portability provisions may be in the form

of reciprocity arrangements with other

plans or jurisdictions, pensions based

on a pro-rata basis from several plans,

or plans that call for contributions to

be sent to a home fund. Portability

agreements with other plans apply to

60 percent of those under multiemployer plans compared to 3 percent of

those covered by single employer

plans.

Unique time-based features also

apply to the availability of retirement

benefits. As shown below, multiemployer plans are more likely than

single employer plans to provide normal (unreduced) retirement benefits

for those retiring before age 65.

Virtually all the employees under

both single employer and multiemployer defined benefit pension plans

can retire before normal retirement age

and receive an immediate, early retirement benefit. Such benefits are reduced from the amount that would be

received at normal retirement because

benefits begin at an earlier age, and

the retiree is expected to receive payments over a longer period. Most

plans permit early retirement at age

55; however, some provide for retirement before age 55 if a service requirement is met.

Approximately two-thirds of participants in multiemployer plans will

receive a pension based on a formula

that specifies a dollar amount to be

paid for each year of service. For example, a plan might pay $20 monthly

for each of an employee’s 25 years of

service, yielding a pension of $500 per

month. Although the dollar amount

in these formulas occasionally varies

with an employee’s earnings or service, usually the method calls for the

multiplication of a uniform dollar

amount by the number of years of service.

In contrast, an earnings-based formula is used to determine retirement

payments for two-thirds of those covered by single employer plans. These

formulas provide a flat percent of the

employee’s annual earnings per year

of service, for example, 1.5 percent of

earnings times 25 years of service, or

45 percent of earnings, or a percent

that varies by service, earnings, or age.

Because multiemployer plans are characterized by workers who may be

forced to change jobs frequently, earnings-based formulas are more difficult

to administer.

Defined benefit plans are required

by law to provide a spouse with at least

50 percent of the retiree’s payments

after the retiree’s death, unless both

spouses decline such coverage. When

this type of pension is paid, the employee will usually receive a smaller

benefit payment during retirement to

offset the increase in the length of time

plan benefits are paid. For 31 percent

of participants in multiemployer plans,

such pension reductions are fully restored if the spouse predeceases the

retiree, compared to 11 percent of

those covered by single employer

plans. For example, the following plan

excerpt stipulates what happens if a

spouse dies before the retiree:

If your spouse dies before you

do, your benefit will be increased

back to the amount you would have

received if you and your spouse had

decided not to take the Joint and

50% Surviving Spouse Payment

Option. The increase in your benefits will go into effect on the later

of January 1, 1990 or the month following your spouse’s death.

Multiemployer plans are more

likely to provide lump-sum survivor

benefits than single employer plans.

Sixteen percent of those covered by

multiemployer plans are provided with

No age requirement ........................................................ 6 4

At age 55-59 ................................................................... 4 1

At age 60 ........................................................................ 7 10

At age 61 ........................................................................ - -

At age 62 ........................................................................ 23 39

At age 63-64 ................................................................... - 3

At age 65 ........................................................................ 52 33

Sum of age and service

 must equal a certain amount ....................................... 8 10

NOTE: Dash denotes less than 0.5 percent.

Percent of

employees in

single employer

plans

Percent of

employees in

multiemployer

plans

Age requirement for normal retirement
 Compensation and Working Conditions Spring 1999 23

Multiemployer Pension Plans

lump-sum survivor benefits after retirement, and 11 percent have lumpsum pre-retirement survivor benefits.

In contrast, single employer plans provide lump-sum survivor benefits to 6

percent and 1 percent, respectively.

Over half of those covered by

multiemployer plans provide survivor

benefits for children compared to about

one-fourth of those under single employer plans.

Summary

Multiemployer pension plans cover

one-fifth of all workers with pension

plans. They meet the needs of a set of

workers who, because of the transitory

nature of their employment relationship, might otherwise have a difficult

time earning sufficient credits to gain

any retirement income from a single

employer pension plan. The vesting,

time in service, portability provisions,

and other features commonly found in

multiemployer plans address the unusual work history of plan participants.

1

 Howard Gleckman, “Issue No. 1 at UPS?

Who Controls the Pension Money,” Business

Week, August 18, 1997, on the Internet at

http://www.businessweek.com/bwdaily/

dnflash/august/nf70818b.htm (visited Jan. 28,

1999). 2

 “Employee Tenure in 1998,” News Release

98-387 (U.S. Department of Labor, September 23,

1998). 3

 Employment and Wages Annual Averages,

1996, Bulletin 2494 (Bureau of Labor Statistics,

November 1997). 4

 Teachers Insurance & Annuity AssociationCollege Retirement Equity Fund. 5

 Ann C. Foster, “Portability of Pension Benefits Among Jobs,” Monthly Labor Review, July

1994, pp.45-50. 6

 Private Pension Plan Bulletin: Abstract of

1994 Form 5500 Annual Reports (U. S. Department of Labor, Washington, DC: Government

Printing Office, Spring 1998). 7

 For information on defined contribution

plans and how they work, see Employee Benefits

in Medium and Large Private Establishments,

1995, Bulletin 2496 (Bureau of Labor Statistics,

1998). 8

 For a description of the history of

multiemployer pension plans, see Teresa

Ghilarducci, Garth Mangum, Jeffrey S. Petersen,

and Peter Philips, “A Century of Union Pension

Funds,” in Portable Pension Plans For Casual

Labor Markets: Lessons from the Operating

Engineers Central Pension Fund (Westport,

Connecticut: Quorum Books, 1995). 9

 Inland Steel Co., 77 NLRB1, enf. 170F.

(2nd) 247 (1948), cert. denied 336 U.S. 960

(1949), 349. 10 For detailed information on the characteristics of single employer defined benefit pension

plans, see Employee Benefits in Medium and

Large Private Establishments, 1995. 11 For many years, vesting requirements under multiemployer plans were allowed by law to

be longer (more years of service) than were similar requirements under single employer plans.

This was changed in 1997; in general, all plans

must provide full vesting after 5 years of service

under the plan.