The Time is Now to Obtain Information for Your Multi-Employer Pension Disclosure
All contractors (“employers”) utilizing union labor must participate in multi-employer pension programs. Employers pay monthly contributions based on hours worked by each covered employee at the contractual rate. Beyond making their required payments, employers have no control over the financial management of the union plans that affect its funding status. Many union plans are severely underfunded, and the general public has concerns that employers have contingent exposure for these obligations. In response to this concern, the Financial Accounting Standards Board (“FASB”) issued a pronouncement for years beginning in 2012 requiring certain financial statement disclosures, including information to be obtained from each union.
The Pension Protection Act of 2006 requires unions to certify the funding status of the plan annually. Funding notices are required to be released 120 days after the end of the plan year and designate vital information on its funding status, whether the plan is endangered or at a critical status, and if surcharges are imposed by the Pension Benefit Guarantee Corp. The funding status is defined as follows:
- Green – 80% or more funded
- Yellow – more than 65% and less than 80% funded
- Red – less than 65% funded
Companies are required to disclosure the information in its financial statements in a tabular format for all plans that are considered to be significant. That information includes:
- The legal name of each plan
- Each plan’s employer identification number and plan number
- The most recently available certified zone status provided by each plan (see above)
- The expiration date of each union’s current collective bargaining agreement
- Whether a funding improvement plan has been implemented, the employer paid a surcharge, and whether there are minimum contributions required for future periods
- For each period presented in the financial statements, the amount of employer contributions to each plan and whether the company provided more than 5% of total contributions to any plan
The FASB pronouncement notes that companies shall disclose each plan’s information based on its most recent public filings. During 2012 and 2013, companies have gotten familiar with the requirements and have adopted processes to obtain this information timely.
Rather than wait until the year-end reporting season to obtain this information, we recommend that companies begin gathering the information as soon as possible. The unions’ business offices are required by law to release this information to participating employers upon request; however, they are not required to release it quickly. A process should begin each fall to request and follow up on requested information well before company financial reporting deadlines.
The FASB pronouncement has also enhanced disclosure requirements for significant changes in employer contributions from year to year for business combinations and divestitures, changes in contractual employer contribution rate, and significant changes in the number of employees in a plan. We recommend that the disclosure requirements be considered as early as possible in the financial reporting plan during the coming year. In addition, employers must disclose the amount of contributions to multi-employer plans that provide postretirement benefits other than pensions.
With FASB requiring more information reliant on third-parties in your disclosures, the best course of action is to prepare now. Create a process to collect the required information well ahead of the year-end, and your company will be well-positioned for meeting financial reporting deadlines.