The supermarket industry employs approximately 3.5 million Americans. It provides its employees with good wages and excellent benefits and is a proven path to success for the American worker.

Among the range of benefits provided by the industry are a variety of pension and profit-sharing plans. Supermarkets offer benefits to associates and management alike through almost every conceivable type of pension plan: defined benefit, defined contribution (401k), hybrid, cash balance and employee stock option plans. They provide two types of defined benefit plans: single-employer and multiemployer, or MEPP, pension plans.

Of the 3.5 million people in the supermarket workforce, approximately 38% are covered by union contracts. Unionized associates who work in the stores belong primarily to the United Food & Commercial Workers Union, while distribution center employees and drivers are generally Teamsters.

While the industry’s union employees receive pension benefits from multiemployer defined benefit plans (MEPPs), MEPP plans are NOT union pension plans. They are plans set up to cover unionized employees that work for multiple or different employers. Companies participating in multiemployer plans pay for the benefits the plans provide. Benefits are negotiated between the unions and employers, and benefit levels are established by Boards of Trustees, half of whom represent participating unions, while the other half represent contributing employers. A chain supermarket company can participate in over 50 different local, regional or national plans, depending on its size and area of operation.

Multiemployer plans are fundamentally different from single employer plans (the type of plans common in the steel, automobile and airline industries). If an employer ceases contributions to an under-funded MEPP, it is required to pay its share, if possible, of the plans’ unfunded liabilities before it can exit. This requirement needs to be strengthened so that departing employers always pay their share of the under-funding. Otherwise, the unfunded benefits of an employer who leaves a plan must be paid by the remaining employers in the plan. Funding requirements must be level and predictable, so that trustees can set benefit levels with some confidence that investment and contribution income will be able to meet statutory standards.

If a MEPP becomes under-funded because of market fluctuations, low interest rates or other reasons, and fails to meet the statutory minimum funding requirements set by the IRS, contributing employers may be required to pay an excise tax to the IRS This tax payment does not go to the plan, but to the government, and the plan remains underfunded.. At first, the excise tax is 5%; if a catch-up contribution is not paid immediately to the plan, an excise tax of 100% or the minimum required contribution is levied by the IRS. This is in addition to the employer’s normal contribution.

While multiemployer plans are better funded than single-employer plans and don’t present an immediate threat to the Pension Benefits Guarantee Corporation like their single-employer counterparts, there are mounting concerns about the funding and rules governing their operation that need to be addressed so they can remain pillars of the nation’s retirement system.

First, if a contributing employer does not have a trustee representative, it has no say in establishing benefit levels and it doesn’t receive timely information about the MEPP’s funding status and operation. If the MEPP becomes under-funded or its trustees breach their fiduciary duties, contributing companies have no legal recourse and must pay the required excise tax. To address this, the system needs greater transparency to provide participating employers with information on the status of the plan upon request or on a regular basis.

Second, the rules governing employer contributions during periods of strong market performance need to be changed. Currently, employers can not receive a tax deduction for their contributions if the MEPP is over-funded (with assets exceeding liabilities), which encourages the trustees to increase benefits. This leads to benefit inflation and doesn’t allow the contributors to take full advantage of market cycles. It also implies that there is something wrong with temporarily over-funded plans. Widening the allowable funding corridor to between 130 to 150 percent would address this problem.

Conversely, imposing an excise tax of five to one hundred percent on companies when a plan is temporarily under-funded, because of adverse market conditions or low interest rates, is counterproductive and punitive. Excise taxes aren’t contributed to the sound funding of the plan and these taxes can amount to tens of millions of dollars and be an unnecessary capital drain on the company. More leeway needs to be given when a MEPP is either over- or under-funded because of the impact of market and investment cycles.

Another focus of reform needs to be the IRS rules restricting benefit reductions. If these rules aren’t adjusted, current demographic and societal trends will put tremendous pressure on MEPPs and the employers that fund them. Multiemployer plans, with similar demographics to Social Security, have fewer active participants on whose behalf employers are making contributions and more retirees receiving benefits. IRS anti-cutback rules do not allow accrued benefits to be reduced even when plans are severely under-funded and participating employers don’t have the ability to make the fund whole -- a situation that could trigger rolling bankruptcies across all participating employers. Each employer is liable for 100% of the under-funding if the other employers can’t or don’t pay their share, an unmanageable situation which could ultimately throw the liability onto the Pension Benefits Guarantee Corporation.

MEPPs are an important part of the nation’s private sector retirement system, providing pension benefits for approximately 9.7 million U. S. workers and retirees. More than one million associates in the supermarket industry are covered by MEPPs. At present, most of these plans are well-funded because participating companies are meeting their contractual obligations. But there are some major exceptions and problems loom on the horizon and Congress should not miss the opportunity to make the changes needed to insure that these plans remain healthy and well managed as it addresses the more pressing problems facing single-employer defined benefit plans during the 109th Congress.