The Bakery & Confectionery Union and Industry International Pension Fund (“B&C Fund”) has been underfunded for many years. Indeed, since the bankruptcy of Hostess Corporation in 2012, the B&C Fund’s financial position has worsened. The assets of the B&C Fund currently comprise only 37 percent of its liability. Stated differently, the B&C Fund has only 37 cents to pay for each dollar of vested benefits to employees and retirees. Employers also continue to leave the B&C Fund, and the demographics of the B&C Fund reflect a high ratio of retirees in relation to active employees. The B&C Fund’s actuaries estimate that the fund will become insolvent 13 years from January 1, 2017.
In an effort to address its funding deficiency, the B&C Fund has invited contributing employers to a meeting to be held in December 2017 regarding a possible new “two-pool” program. The two-pool program will likely be similar to the program adopted by the New England Teamsters Pension Fund. Thus, employers who join the new pool will likely pay a withdrawal liability amount, possibly on a discounted basis, for past unfunded liability. They will then join the “new pool,” which will be funded at a very high rate—with reduced benefits—to prevent future unfunded liability problems like those in the present plan. In theory, employers who join the new pool will be shielded from additional liability payments should the B&C Fund become insolvent and suffer a mass withdrawal.
A new two-pool proposal might offer benefits for contributing employers to the B&C Fund, although it is unlikely to be a panacea for the Fund’s long term financial problems. Nevertheless, the B&C Fund’s two-pool proposal may mark the first significant proposal by a large multiemployer pension plan since the proposal suggested by the Central States Pension Fund was rejected by the Pension Benefit Guaranty Corporation (“PBGC”) and The Treasury Department during 2016.
Employers that contribute to the B&C Fund should explore any new two-pool program carefully. Among other things, employers should ask whether a discount of present withdrawal liability will be offered to employers who enter into the new pool, either for an initial lump sum payment or for payment over time. Employers should also determine whether the B&C Fund and the PBGC will provide written assurances that employers who pay current withdrawal liability as a condition to entering the new pool will be shielded from additional withdrawal liability should the B&C Fund face insolvency and mass withdrawal in the future. Lastly, employers should inquire whether there will be a partition plan included in the two-pool program that will separate benefits for “orphaned” employees of Hostess and other employers who are no longer contributing to the B&C Fund.
Stay tuned to the Polsinelli at Work blog, where we will provide further updates regarding the “two-pool” program as they become available.