Multiemployer Defined Benefit Pension Plans: Employer Withdrawals and Financial Vulnerability

Abstract

Multiemployer defined benefit pension plans are facing severe funding challenges. The Pension Protection Act of 2006 requires that a multiemployer pension plan with an actuarial funded percentage of less than 80% must take corrective actions to improve its financial health. We use a regression discontinuity design to examine the effect of funding rule requirements on employer withdrawals from multiemployer pension plans. We find that multiemployer pension plans subject to funding rule requirements are about 14 percentage points more likely to experience employer withdrawals in a 1-year period compared to plans not required to take any corrective actions. We also find that plans with ex ante employer withdrawal experiences are more vulnerable to financial shocks such as the 2008 financial crisis. Our study provides important policy implications for regulators concerning best practices to build pension plan resilience to insolvency events.