Compliance January 18, 2023

Special Financial Assistance Provided to 2 Additional Union Pensions

The two union pensions, one in transportation and the other in graphic communications, will receive more than $100 million in combined funds.

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The Pension Benefit Guaranty Corporation announced the approval of two supplemental assistance packages today.

The first was for the Teamsters Local 641 plan. The Union City, New Jersey-based plan had 3,610 participants and will receive an additional $96.1 million on top of the $516.9 million received in March 2022.

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The other plan approved today was the Printers League Graphic Communications International Union (GCIU) Local 119B New York Pension Plan. The East Farmingdale, New York-based plan, for workers in what is now known as the Graphic Communications Conference of the International Brotherhood of Teamsters, has 1,213 participants and will receive an additional $96.1 million on top of the $516.9 million received in August 2022.

According to the GCIU Local 119B Plan’s initial application, the plan became insolvent in August 2021. The supplemental application, filed in April 2022, originally requested approximately $85 million. The final figure of $96.1 million in supplemental assistance likely includes interest generated since April, though the GCIU Local 119B Plan did not return a request for comment.

According to the PBGC, the Special Financial Assistance Program has now issued $45.7 billion to struggling pension plans as of today.

The SFA provision of the American Rescue Plan Act allows for PBGC funding for severely underfunded multiemployer pension plans. Funds that receive assistance must monitor the interest resulting from the grant money as separate from other sources of funding. The PBGC requires that at least two-thirds of the money it provides be invested in “high-quality fixed income investments.” The Final Rule on Special Financial Assistance, issued in July 2022, states that the other third can be invested in “return-seeking investments,” such as stocks and stock funds.

Data and Research January 18, 2023

Employer Satisfaction Slows for ‘Key Employee’ Retirement Plan

Employers that offer NQDC plans have increased their use of bad actor forfeiture clauses, the Plan Sponsor Council of America finds.

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Fewer employers using nonqualified deferred compensation plans were very satisfied with the current structure of their plan, data from the Plan Sponsor Council of America shows.

The research found 20% of employers that offered an NQDC plan did not make any plan changes in the last year and that 25% planned to make changes in 2023. Employer satisfaction with the retirement plans declined, shown by 28.2% of employer respondents that were very satisfied, compared to 38.2% in 2020, according to PSCA data published earlier this month.

The PSCA survey showed the percentage of employers making contributions to their NQDC plans increased to 77.3% in 2022, up from 74.2% in 2020, the last year for which data is available. Employer contributions often indicate a restoration match to compensate for a match missed due to qualified plan contribution limits, and those were offered by 42.2% of employers, an increase from 27.5% in 2020. Meanwhile, 19.7% of employers noted participation in their NQDC plan has increased compared to a year ago.

Often used by employers to attract and retain talent—specifically highly compensated corporate executives—NQDC plans allow an agreement between the employee and plan sponsor to defer a portion of their annual income until a future date.

Among plan sponsor respondents, the most common reason they offered NQDC benefits was to “have a competitive benefits package,” at 87.9%. Among respondents, 83.6% said the deferred compensation plan is used to retain eligible employees, according to PSCA research.

Additionally, half of employees have made contributions to the plan when offered the opportunity, deferring an average of 10% of pay to their accounts, the PSCA found.

The percentage of eligible employees with plan balances has fluctuated: it was 61.1% in 2022, compared to 66.1% in 2020 and 60.4% in 2016, PSCA’s research found.

Although employers are using NQDC plans to attract talent, the plan designs increasingly include tactics to retain key workers, as almost 40%—up from 23.7% in 2021—have a bad actor forfeiture clause, and nearly 30% have a non-compete provision that forfeits the NQDC benefit if the employee leaves to work for a competitor, PSCA research found.

The forfeiture rules governing NQDC plans allow companies to recoup compensation from “bad actors,” such as executives that have participated in bribery, according to law firm Shearman & Sterling.

The PSCA report surveyed companies that offer NQDC plans, but data from a different survey show that the likelihood of a company offering an NQDC plan tends to correspond directly to number of employees. According to the PSCA, 81.3% of companies with at least 5,000 employees and 54.8% of companies with between 1,000 and 4,999 employees offer such plans. For all plans, including those larger ones, the rate was 32.7%.

The PSCA 2022 NQDC Plan Survey was conducted in October 2022 and includes responses from 135 organizations offering an NQDC plan to employees. The full survey is available for purchase from the PSCA.

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