How to Calculate the Withdrawal Liability of a Multi-Employer Pension Fund


A multi-employer pension plan is a retirement plan to which a group of businesses contribute. These types of plans are designed so that the businesses share the cost of administrating the plan and its benefits. Contributions are placed in an investment fund. In some cases, the plan accrues unfunded, vested benefits. That is, the value of the plan's portfolio is decreasing, and it will not cover the future benefits promised to the plan's contributors. If employers withdraw from the plan, they are still responsible for covering their portion of these benefits. Withdrawal liability is the cost employers must pay to cover their portion of the unfunded future benefits of such a plan.

Evaluate the situation. Consult with legal counsel to determine if you must pay withdrawal liability. If so, determine whether or not you qualify for the "de minimus rule" reduction. You may also apply for special rules if you are in certain industries and under specific circumstances. The de minimus rule excuses smaller employers from withdrawal liability or reduces liability in some cases. For instance, in some cases, employers with liabilities of $50,000 or less (or those that are responsible for less than 0.075 percent of the total unfunded vested benefits) can have that liability eliminated from the plan. The Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) also has special rules for the construction, entertainment, trucking, moving and warehousing industries.

Determine the total amount of the plan's unfunded vested benefits. According to Title 29, Part 4006.4 of the Code of Federal Regulations, a plan's unfunded vested benefits are the amount by which the plan's target future benefit exceeds the value of the plan's assets. Each of these variables depends on the situation, as many factors are involved. For example, say the target future benefit is $3 million, but the value of the plan's assetsis $2 million. The unfunded vested benefit would be $1 million in this case.

Determine your portion of the unfunded vested benefits. The simplest method is the "one pool" calculation (those in the construction industry cannot use this method). This takes a ratio of your contributions for the past five years to the total contributions for the past five years, as reported by the Segal Company. For instance, if your company contributed $400,000 to the plan for the past five years and the total contributions were $1.6 million, your portion would be 25 percent.

Multiply your portion by the total unfunded vested benefits to determine your withdrawal liability. As an example if your portion was 25 percent and the unfunded vested benefits were $1 million; your withdrawal liability would be $250,000.

Tips & Warnings

  • Withdrawal from a multi-employer pension plan is a serious and complex situation and you should seek legal counsel for advice on this matter.
  • This article is not intended to substitute for professional financial or legal advice.

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