Benefits May 16, 2016

State OPEB Funding Improved

While fewer private-sector employers are offering retiree health benefits, nearly all states provide workers access to certain retiree health care coverage.
Reported by

States’ other post-employment benefit (OPEB) liabilities decreased 10%, to $627 billion, between 2010 and 2013, after adjusting for inflation, according to a report by The State Health Care Spending Project, an initiative of The Pew Charitable Trusts, and the John D. and Catherine T. MacArthur Foundation.

This drop resulted from lower rates of growth in health care costs and changes states made to their OPEB funding policies and retiree health plan provisions, the report says.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

State-funded ratios increased from 5% in 2010 to 6% in 2013. However, this trend varied greatly among states—the funded ratio of eight states decreased, and Oregon increased its funded ratio by 25 percentage points.

States’ actual expenditures for OPEB totaled $18.4 billion in 2013, or 1.6% of state-generated revenue. If states had instead set aside the amount suggested by actuaries to pay for OPEB liabilities, their total payments that year would have more than doubled to $48 billion—4% of state-generated revenue—and spending to fully fund OPEB obligations would have outpaced what states contributed to active state employee health premiums.

The states that automatically increased their retiree health insurance premium contribution when the total cost of the premium rose had higher OPEB liabilities relative to the size of their economies in 2013, while the states that paid a fixed amount toward retirees’ health insurance premiums had relatively lower OPEB liabilities.

NEXT: Retiree health plan provisions and coverage comparison to private sector

States varied in how they modified retiree health plan provisions, according to the report. For example, between 2000 and 2015, Idaho eliminated retiree health coverage for newly hired employees; at least five states stopped making any health premium contribution for certain retirees; and more than a dozen states changed the minimum age or the number of state service years required for retirees to be eligible for health benefits.

Thirty-five states have implemented Medicare Advantage or Employer Group Waiver Plans to provide health or prescription drug benefit coverage for Medicare-eligible retirees since these options were authorized as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. These cost-saving programs provide states with financial subsidies from the federal Medicare program to provide Medicare plus wraparound benefits, the report explains.

All states, with the exception of Idaho, offer newly hired public workers access to certain retiree health care coverage as part of their benefits package. Thirty-eight of these states have committed to making contributions toward health care premiums for such coverage.

Retiree health coverage for these state government workers stands in sharp contrast to the private sector, where the proportion of firms with 200 or more workers offering health coverage to retirees has dropped from 66% in 1988 to 23% in 2015. The report notes that rising health care costs, changes in accounting standards for reporting the cost of retiree health benefits, competition from overseas firms and small startup companies, and the addition of prescription drug coverage to the Medicare program have contributed to this drop in private-sector retiree health benefits, but although facing many of these same circumstances, most states continue to offer health benefits to their retired public workers.

The report is available here.
Compliance May 16, 2016

Court Expands Withdrawal Liability Rules for Construction Employers

The federal appellate court’s opinion turned on when to assess common control among employers.
Reported by

The 10th U.S. Circuit Court of Appeals has found that a construction employer owes multiemployer plan withdrawal liability even though a non-union construction employer continued its operations within five years after the union employer exited the plan.

The case involves Ceco Concrete Construction, LLC, which withdrew from the Centennial State Carpenters Pension Trust as of May 1, 2010. Ceco’s owner Heico Holdings, Inc. acquired non-union construction company CFA in October 2010. CFA performed the same type of work that Ceco did.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

The court noted that under the Multiemployer Pension Plan Amendment Act (MPPAA), construction employers are treated more generously than other employers when it comes to withdrawal liability. For most employers contributing to a multiemployer plan, withdrawal liability arises when the employer stops its duty to contribute or ceases covered operations, but for a construction employer withdrawal liability does not arise unless it continues covered operations or resumes them within five years. 

“This generous treatment accounts for the temporary nature of construction projects and allows construction employers to stop contributing to pension plans in certain circumstances without incurring withdrawal liability,” the court wrote in its opinion.

The parties in the lawsuit stipulate that CFA resumed covered work within five years of the May 1, 2010, cessation of Ceco, but CFA was not under common control with Heico or Ceco at the time of cessation.  The question before the court is whether the plan can impose withdrawal liability against Ceco as a result of CFA’s resumed work.  

NEXT: When to assess common control

Both an arbitrator and a lower court ruled that withdrawal liability can be assessed only against entities that are under common control on the date the obligation to contribute to the plan ceases. They concluded the plan could not assess withdrawal liability on Ceco because CFA was not under common control with Heico and Ceco when Ceco’s obligation ceased.   

However, the 10th Circuit disagreed and remanded the lower court’s decision. The appellate court held that hold that withdrawal liability may be assessed against all entities in the common-control group at the time of continuation or resumption of covered work. It concluded the plan was permitted to assess withdrawal liability against Ceco because Ceco was under common control with CFA when CFA resumed covered work.

The 10th Circuit also found the definition of “employer” under the MPPAA includes present and future compositions of the common-control group, and the language of the MPPAA indicates the common control must be determined when the common-control group triggers a withdrawal, which occurs when covered work resumes within five years of ceasing to contribute to the pension plan. “The statute defines ‘employer’ in the present and future tenses, not in the past tense,” the court wrote in its opinion. “The MPPAA’s plain language indicates common control must be determined at the time the group resumes covered work—not at the time of cessation.”

The court also noted, “Determining common control at the time the obligation to contribute ceases would provide an end run around MPPAA withdrawal liability. Like the common-control group here, a group would avoid liability by terminating its obligation to contribute and then acquiring a nonunion business that resumes covered work. The common-control group would then escape any liability because the newly acquired entity would not have been under common control on the date of cessation. This would run contrary to the MPPAA’s aim of protecting pension funds from the adverse effects of employer withdrawals and of imposing withdrawal liability on common-control groups regardless of corporate form.”

The 10th Circuit’s opinion is here.

«