UPDATE: JANUARY 13, 2017
This morning I learned that the doorstaff pension plan is in its 50th year of existence. The question I have is if State Parkway joined the pension plan in 1968 (some 25 years before it became incorporated and converted to condos), is State Parkway, as successor corporation, liable for unfunded pension liabilities related to vested plan benefits that go back to 1968? I will ask the board this question at the January 23, 2017, board meeting.
[Note: This post was created after State Parkway refused to make a letter it had received ABOMA (Apartment Building Owners and Managers Association) regarding the doorstaff pension fund available for mine and my wife’s inspection. My wife and I were able to inspect some of the requested materials after we filed yet another complaint (number 6 of 12 complaints) with the City of Chicago.]
Beginning with the 2014 Financial Review, the first prepared by independent accountant Picker and Associates, State Parkway stopped making the required disclosures with respect to its participation in multiemployer pension plans.
Accounting Standards Update (ASU) 2011-09 was issued by the Financial Accounting Standards Board (FASB) to address concerns from users of financial statements regarding the lack of transparency of financial statement disclosures regarding an employer’s participation in a multiemployer pension plan. Multiemployer plans are unique in that the assets of one employer may be used to provide benefits to other participating employers’ employees. As such, if one participating employer defaults on its obligations, the unfunded obligations of the plan become the responsibility of the remaining participating employers.
ASU 2011-09, which went into effect for non-public entities for annual periods ending after December 15, 2012, requires the following quantitative and qualitative disclosures:
- List of significant multiemployer plans the employer participates in, including the plan names and identifying number.
- The level of the employer’s participation in the significant plans, including the employers’ contributions made to the plans along with an indication as to whether the employers contributions represent more than 5 percent of the total contributions made to the plan.
- The financial health of the significant plans, including the funded status, whether funding improvement plans are pending or implemented, and whether the plan has imposed surcharges on the contributions to the plan.
- The nature of the employer commitments to the plan, including when collective bargaining agreements that require contributions to the significant plans are set to expire and whether those agreements require minimum contributions to be made.
ERISA § 4209 states if an employer’s withdrawal liability is less than $100,000, the employer will receive a $50,000 deductible toward its withdrawal liability account. If the employer’s withdrawal liability is over $100,000, De Minimis is reduced dollar for dollar for amount owed over $100K. If the employer’s withdrawal liability is over $150,000, no deductible — the employer must pay 100% of the withdrawal liability. (Payment options are lump sum, quarterly payments for up to 20 years, interest accrues at 7.5%.)
To put the preceding paragraph in perspective, last summer NIPF gave estimates of the withdrawal liability for a sample building that has 24/7 doorstaff with 1 employee on duty. The gross withdrawal liability estimate in 2013 and 2016 were $99,342 and $115,649, respectively. The De Minimis deductible in 2013 and 2016 were $50,000 and $34,351 ($50,000 – $15,649), respectively. And the net withdrawal liability due in 2013 and 2016 were $49,342 and $81,298, respectively. As you can see from this example, the net withdrawal liability in 2016 is 64.8% higher than in 2013 because of the reduction in the De Minimis once the withdrawal liability exceeded the $100K threshold.
The final ASU does not require separate disclosure of the potential withdrawal liability, but requires that multiemployers continue to follow the loss contingency guidance, FASB ASC (Accounting Standards Codification) 450, for any withdrawal liability that is probable or reasonably possible of being incurred. Notwithstanding, the board has a fiduciary duty to keep an eye on the withdrawal liability estimate every year and exercise due diligence in making the decision whether or not the Association should withdraw from NIPF. Otherwise the board could end up being penny wise and pound foolish, especially if State Parkway’s withdrawal liability crosses either the $100K or $150K threshold as demonstrated in paragraph that follows the table below.
Why is this disclosure important? Well, for starters, one of State Parkway’s multiemployer pension plans, the one for union doorstaff, the S.E.I.U. National Industry Pension Fund (NIPF) (Plan 001 for Doorstaff, Employer Identification Number: 52-6148540), according to its Form 5500 filing with the United States Department of Labor, dated October 14, 2016, is currently in critical status because a funding deficiency was projected in the Funding Standard Account within three years. (Funded percentage for the 2015, 2014 and 2013 Plan Years were 73.2%, 76.9% and 80.8%, respectively.) The rehabilitation plan calls for a supplemental surcharge at $.406 to $.469 per hour (over and above the base $.65/hour). This means the association is paying approximately an additional $4K each year to make up for past funding/investment income shortfalls.
But employers like State Parkway have options. One option is to remain in NIPF – and pay base contribution ($.65) plus Supplemental Contribution ($.409 to $.469) for a total of $1.06 to $1.12/hour. Or withdraw from NIPF, pay withdrawal liability that is due, and go into the 401(k) savings plan (hourly contribution $.65).
Below is a table showing the number of employers that withdrew from the plan during the preceding plan year, and their aggregate and average withdrawal liabilities as reported on NIPF’s Schedule R (Form 5500):
Year Number of Employers Aggregate Liability Average Liability
2015 9 $6,412,421 $712,491.22
2014 105 $13,784,673 $131,282.60
2013 11 $7,613,966 $692,178.73
2012 20 $8,327,538 $416,376.90
2011 13 $15,188,367 $1,168,335.92
2010 3 $3,386,005 $1,128,668.33
2009 8 $1,830,115 $228,764.38
The ParkShore Condominium Association, a condominium high rise in Chicago’s lakefront, which was built in 1991 and has a doorstaff budget similar to State Parkway’s, elected on December 1, 2013, to withdraw from the NIPF as it pertains to doorstaff and eventually recorded a total withdrawal liability of $187,509. State Parkway was built more than several decades earlier than ParkShore, and its lead doorman celebrated his 35th anniversary at State Parkway last May.
State Parkway’s board, at the November 7, 2016, board of directors’ meeting, made the decision not to withdraw from NIPF and switch to a 401(k) savings plan. However, this appears to have been done without the board obtaining an estimate of State Parkway’s withdrawal liability. If the withdrawal liability is less than $100K, the association is squandering a $50K deductible, not to mention exposing the association to significantly higher underfunding risks. It only costs the association $750 to obtain a withdrawal liability estimate.
I will continue to follow the Association’s withdrawal liability for doorstaff pensions with interest. Other State Parkway unit owners and prospective buyers should do the same.