Perloff Bros. Inc., a Philadelphia-based wholesaler of Tartan Foods, wanted to expand and had found just the way to do it. A small wholesale grocer in upstate Pennsylvania was for sale. Last May, Perloff offered $5 million to $10 million for the company. The deal was set -- but, at the last minute, it fell through. The spoiler was a piece of legislation known as the Multiemployer Pension Plan Amendments of 1980.
Signed into law by President Carter the act is a classic example of a good idea gone bad. Congress adopted the legislation to protect the pensions of workers enrolled in so-called multiemployer pension plans, that is plans covering workers at more than one company. Such plans are common in industries with large numbers of small employers high employee mobility, or both -- the construction and trucking industries, for example. But, in the end, the law wound up accomplishing almost the exact opposite of what was intended.
How? At the time, it was feared that many employers might suddenly withdraw from partially funded plans, leaving the plans unable to cover the benefits owed to retired workers. To discourage such an exodus, the law imposed a "withdrawal liability" on employers leaving these plans for almost any reason -- retirement, plant relocation, the sale of assets, and so on. Now drop-out employers are subject to a penalty, based on the plan's unfunded, but already vested, liabilities (There is no penalty for withdrawing from a fully funded plan.)
As it turns out, that penalty can add up to a lot. In 1982, says Michael Romig, manager of Employee Benefit Policy for the Chamber of Commerce of the United States, the Chamber reported that now-defunct Republic Industries Inc. acquired Johnson Motor Lines for $1.7 million in 1978, but closed down the line in 1980, following deregulation of the trucking industry. So far, five pension plans have filed claims seeking "withdrawal liabilities" totaling $20 million -- more than 10 times the company's value.
Numbers like that frightened Perloff Bros. into dropping its plans to acquire the Pennsylvania grocery company. They scare others, too. "If you form a new business, and the union comes to you and offers you the opportunity to get in a multiemployer plan, more and more companies are saying no or are fighting unionization. They fear this potential liability," explains Dan Knise, director of collective bargaining services for Associated General Contractors of America, a trade group based in Washington, D.C. The group is among the 34 trade associations that have banded together to form the Ad Hoc Coalition for Multiemployer Pension Reform. The purpose of the coalition is to push for laws to correct problems caused by withdrawal liabilities.
Such legislation will, in fact, be introduced some time this fall. The bill will be "designed to destigmatize multiemployer pension plans, so that new contributing employers may be attracted to the plans," says Charles T. Carroll, counsel to the U.S. Senate's labor subcommittee.
Carroll won't speculate on the bill's chances of passage, saying, "In the short run, who can tell?" He may have a point. Already, the forces are lining up on the other side, led by the National Coordinating Committee for Multiemployer Plans, an organization made up of about 140 national, regional, and local benefit funds. "In the past, the coordinating committee has opposed bills like the bill they are hoping to get introduced," says Gerald M. Feder, the group's counsel. "I have no reason to expect we will take a different position now."
Feder notes that the 1980 act includes a way for plan administrators to petition for "administrative relief" from withdrawal liabilities. Critics of the act say the procedure simply takes too long.
Meanwhile, a proposal being bandied about by the Financial Accounting Standards Board in Stamford, Conn., could compound the problems besetting companies involved in multiemployer pension plans. The FASB is debating whether such companies should be required to disclose their potential withdrawal liability on their balance sheets. (It will hold public hearings on the matter in New York City at the end of October.)
Businesspeople don't like that idea one bit. "For a small business that is so dependent on its bonding and credit capacity, numbers like that will deflate their assets and will have a major impact on their ability to stay in business,"says Associated General Contractors's Knise.
Denis R. Zegar, vice-president for government services for the National-American Wholesale Grocers Association in Falls Church, Va., agrees. "The FASB is promulgating regulations for 1985," he notes. If it adopts a rule requiring the disclosure of withdrawal liability, "you're going to wipe out a great deal of small business, because they're not going to be able to borrow."
But small businesses would not be the only ones to suffer. In the long run, the multiemployer pension plans themselves could be devastated -- which was, of course, precisely what the 1980 act was trying to avert.