This article reflects FASB's deliberations as of March 2011. Click here to read the update.

Understand how construction companies may be exposed to additional risks.

Multiemployer pension plans are a mainstay of collective bargaining in the construction industry and many other industries that have union representation. Often referred to as joint trusts or union plans, multiemployer pensions are well-suited for the seasonal and brief nature of some construction work.

For decades, employers had to contribute to a multiemployer pension trust according to a collective bargaining agreement. The plan's trustee handled the administration, compliance and financial reporting.

This isolated employers from the financial management of benefit plans. But this isolation ended with the passage of the Employee Retirement Income Security Act (ERISA) in 1974 and the Multiemployer Pension Plan Amendments Act (MPPAA) in 1980. MPPAA established employer withdrawal liability, which significantly increases an employer's risk associated with underfunded pension plans.

Now, the Financial Accounting Standards Board (FASB), which sets generally accepted accounting principles (GAAP) for U.S. businesses, has issued an exposure draft of a proposed accounting standards update that would significantly increase disclosure requirements for employers participating in multiemployer plans.

The proposed standard would have a major impact on the compliance burden of construction companies in particular. Nearly 45 percent of the 10.1 million participants in multiemployer benefit plans are construction industry workers or retirees.


Underfunding has always been a risk for multiemployer plans, but that risk has increased dramatically during the current economic crisis. The funding status of most plans deteriorated as the economy and financial system deteriorated in 2008. Asset values dropped significantly leaving large, unfunded obligations.

In light of these conditions, financial professionals have concerns about the lack of information provided by disclosure requirements and the commitments and risks involved with an employer's participation in a multiemployer plan.

The MPPAA says that if an employer withdraws from a multiemployer pension plan at a time when the plan is underfunded, the employer must pay a withdrawal liability payment. The purpose is to prevent a situation in which the last employer in the plan is left with the unfunded liability.

FASB's proposed accounting standards update is an attempt to address these and other concerns. Currently, U.S. GAAP only requires employers to disclose their total contribution to multiemployer plans. There is no requirement to disclose how many plans they contribute to or the funding status of these plans.

Proposed Disclosures

FASB believes the disclosures proposed in the draft would help financial professionals better assess potential risks employers face. However, construction companies and others have raised several issues with the proposed new standard.

One problem many are concerned about is whether the plan's trustees will provide the additional information needed for the disclosures, and these companies want to know what recourse can be taken if any information cannot be obtained.

Others are concerned with the cost of gathering information for all employers participating in the plan (since plan assets and liabilities change with investment returns and population demographic issues).


In addition to these issues, some foresee a gap in time between a plan's year-end and an employer's year-end, which means employers would be using outdated information. Information could be six to 12 months old when it is disclosed, making it much less useful.

Naturally, underfunding remains an issue with all employers. Companies do not want to show potential liabilities in their financial statements, even if these liabilities just appear in the footnotes.

Proposed Timeline

At its Nov. 10, 2010, meeting, FASB extended the proposed effective date of any potential updates for one year. The proposed update would have been effective for public companies for fiscal years ending after Dec. 15, 2010, and for nonpublic companies for fiscal years beginning on or after Dec. 15, 2010.

FASB has received more than 320 comment letters on the draft and plans to use the additional time to analyze these letters.

The proposed rules are expected to be finalized this year.

Next Steps


The extension of the proposed effective date takes some pressure off those contractors contributing to multiemployer plans. However, in anticipation of the eventual implementation, employers should gather and analyze the required information with plan administrators, legal departments, human resources and others. If, for some reason, the disclosure information is not available, the employer must explain why.


Construction Business Owner, July 2011