A clear guide to how multiemployer pension plan termination works, what it means for employers and workers, and how PBGC protection applies.
A Termination (Multiemployer Plans) refers to a situation where a multiemployer pension plan stops operating in its normal form. This usually happens in one of two ways:
-
all contributing employers withdraw from the plan at the same time (called a mass withdrawal), or
-
the plan is amended so participants can no longer earn additional service credit with any employer as of a specific effective date.
Unlike single-employer pension plans, termination in a multiemployer plan follows a unique process and does not mean the plan immediately shuts down. Understanding how this works is important for workers, retirees, unions, and employers involved in these plans.
How Multiemployer Plan Termination Happens
Multiemployer plans are jointly sponsored by multiple employers, typically within the same industry, and managed by a board of trustees. A termination can occur under two main scenarios:
-
Mass withdrawal: Every contributing employer leaves the plan, often due to industry decline, bankruptcies, or major structural changes.
-
Plan amendment ending future accruals: The plan continues to exist, but participants stop earning new pension credits after the amendment’s effective date.
In both cases, employees keep the pension benefits they have already earned, as long as those benefits are vested.
What Makes Multiemployer Plan Termination Different?
One key difference between multiemployer and single-employer plan termination is who continues to run the plan.
In a terminated multiemployer plan, the plan sponsor (the board of trustees) continues to administer the plan and pay benefits using existing plan assets. The plan does not immediately transfer responsibility to the Pension Benefit Guaranty Corporation (PBGC), which often happens with terminated single-employer plans.
Benefits are paid as long as the plan has enough money to meet its obligations.
PBGC Protection and Financial Assistance
PBGC plays a different role in multiemployer plan termination. PBGC does not take over the plan right away. Instead, PBGC’s guarantee applies only if and when the plan becomes unable to pay benefits at the level guaranteed under ERISA.
When that happens, PBGC provides financial assistance to the plan so it can continue paying guaranteed benefits. Important points to understand include:
-
PBGC assistance is paid to the plan, not directly to participants.
-
The PBGC guarantee for multiemployer plans is generally lower than for single-employer plans.
-
Payments continue only at the guaranteed level, not necessarily the full promised benefit.
This distinction often leads people to search for phrases like “PBGC multiemployer plan guarantee” or “what happens when a multiemployer pension plan terminates.”
Withdrawal Liability Still Applies
Even after termination, employers are not automatically free from responsibility. The plan sponsor remains responsible for assessing and collecting withdrawal liability.
Withdrawal liability is the amount an employer owes to help cover unfunded vested benefits when it leaves a multiemployer plan. After a mass withdrawal:
-
Employers may owe significant amounts to the plan.
-
Payments help support remaining plan assets and benefit payments.
-
Disputes over withdrawal liability are common and often involve complex calculations.
This is why withdrawal liability in multiemployer plans is closely connected to plan termination.
A Simple Real-Life Example
Imagine a trucking industry pension plan supported by dozens of employers. Over time, companies close or leave the industry. Eventually, all remaining employers withdraw, triggering a mass withdrawal.
The plan stops earning new benefits, but retirees and vested workers still receive payments from existing assets. Years later, if the plan runs short of money, PBGC steps in with financial assistance to support guaranteed benefits—while the trustees continue to administer the plan and collect withdrawal liability from former employers.
Why This Matters for Workers and Employers
For workers, termination affects future benefit accruals but does not erase benefits already earned. For employers, it can mean substantial withdrawal liability and ongoing financial responsibility. For retirees, it determines whether benefits are paid fully or at PBGC-guaranteed levels.
In simple terms, Termination (Multiemployer Plans) does not mean the plan disappears overnight. It marks a shift in how benefits are earned, funded, and protected—often over many years. Understanding this process helps everyone involved make more informed financial and retirement decisions.
