Why does the supermarket industry care about defined benefit multiemployer plans?

The supermarket industry employs approximately 3.5 million Americans. The workforce is partially unionized with about 38% of its associates covered by union contracts. Among large companies with more than 102 stores, this figure jumps to 55% covered associates. While supermarkets offer benefits to associates and management alike through almost every type of pension plan, the industry’s union employees receive pension benefits from multiemployer defined benefit plans (MEPPs).

Supermarkets are labor intensive businesses with payroll and employee benefits together comprising more than half of a retailer’s gross margin, or 38.5 cents of every consumer food dollar. We have invested heavily in our employees and provide strong, stable retirement plans for them.

What is a multiemployer pension plan?

Multiemployer plans provide retirement coverage for unionized employees within an industry or trade. For the supermarket industry and food wholesalers, these plans cover clerks, shelf stockers, truck drivers, bakers, and meat cutters in plans collectively bargained between employers and unions. A large chain supermarket can be in more than 50 different local, regional or national multiemployer plans. Regional supermarket chains and even one store operators participate in these types of retirement plans.

Multiemployer defined benefit pension plans covered 9.7 million participants in 2003, according to the Pension Benefit Guaranty Corporation (PBGC). Approximately 25% of these covered employees are in the supermarket industry.

Are the so-called “union” plans, truly union plans?

Multiemployer plans are not “union plans.” While benefit levels are established through collective bargaining, the plan is administered by a board of trustees, with equal representation appointed by management and the union(s). The plan trustees oversee the investment of plan assets, and administrative expenses are paid from these assets. The trustees are subject to strict fiduciary liability. While these plans are collectively bargained, companies’ payments and investment earnings pay the benefits.

How do multiemployer plans differ from single employer plans?

Multiemployer plans differ from single employer plans in a number of important ways. First, they are forward funded by collectively bargained employer contributions, regardless of market performance. Second, participating companies are subject to strict, fiduciary liability and if the plan becomes underfunded can be required to pay excise taxes of up to 100% of the underfunded contribution amount. Third, participating employers cannot simply decide to stop funding their obligations. There is a set exit charge that can be avoided only in cases of bankruptcy. And last, if an employer goes bankrupt, the PBGC assistance is provided not to beneficiaries, but as a loan to the plan, which adjusts its operation to repay the PBGC.

What type of plan contributions are made by employers?

Employers voluntarily, through collective bargaining agreements, contribute significant amounts to ensure the retirement of their associates. They are sometimes required to make additional contributions on top of regular payments, when market investments don’t perform well. These extra payments, on top of regular contributions, are required by law. Multiemployer plans, unlike single employer plans, fund benefits in advance.

Do multiemployer plans have funding problems?

The trustees of multiemployer plans invest employer contributions to adequately fund liabilities. When markets perform poorly and interest rates are low, significant funding shortfalls, although on paper, can trigger punitive and counterproductive excise taxes of up to 100% of the shortfall, even though market cycles will eventually correct the situation. This is exacerbated by rules that discourage companies from overfunding their plans when markets are strong by denying them a tax deduction if the contributions exceed allowable limits—a Catch-22 that triggers tremendous funding volatility and potentially unwarranted benefit increases.

How are multiemployer plan pensions portable?

One of the significant benefits of a multiemployer plan is that all its assets and liabilities are a shared responsibility of the participating employers and are not segregated or credited to any one employer. The assets and risks are pooled together making these plans particularly valuable to industries with mobile workforces, such as construction and food retailing. Union employees moving from employer to employer in the same industry carry their pension benefits with them.

Why is the PBGC’s role less important to multiemployer plans?

Unlike a single employer plan, a multiemployer plan is insolvent when its assets are not enough to cover benefit payments for the coming year. Such a plan is required to cut benefits to match what the assets can provide, but not below the level guaranteed by the PBGC. Even when it runs out of money for benefits, its trustees, not the PBGC, operate an insolvent multiemployer plan. If an employer goes out of business, the plan continues functioning as a separate entity, and contributions from the remaining employers continue. The PBGC guarantee is provided in the form of periodic cash infusions, made available by PBGC to the trustees as loans, not direct payments as in the single-employer plans.