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Employee Benefits Attorney Deborah Lerner Comments on the SAG and AFTRA Union Merger and Subsequent Unification of Pension and Health Plans

February 2, 2012

SAG, AFTRA Merger Would Not Produce Unified Pension, Health Plans Right Away (Daily Labor Report)

By: Tom Gilroy

LOS ANGELES--Whether or not the roughly 200,000 actors, artists, and other performers represented by the Screen Actors Guild and the American Federation of Radio and Television Artists vote to merge the two unions, a merger would not necessarily produce a unified pension or health plan, according to a Feb. 1 union report and independent analysts.

In fact, merging the now-separate SAG and AFTRA health, and especially pension, plans almost certainly would take longer, and require more effort, than a simple vote of the rank-and-file, according to outside analysts and a "feasibility review" SAG and AFTRA posted Feb. 1.

In the feasibility review, SAG and AFTRA offer a possible seven-step process for consolidating the health and retirement plans, but make it clear that any combination of the plans would occur "only after performing extensive studies and analysis to determine if this is in the best interest of both sets of plans' participants."  

". . . [E]ven if both SAG and AFTRA jointly desired to merge the plans, they would not, either separately or together, have the legal authority to do so," Deborah M. Lerner, a partner and employee benefits expert at Willig, Williams & Davidson in Philadelphia wrote in the SAG-AFTRA feasibility review.

The national boards of the two largest entertainment unions voted overwhelmingly Jan. 27 and Jan. 28 to approve a merger plan ( 19 DLR A-8, 1/30/12).

SAG said Jan. 27 that referendum ballots will be sent to its members "in the coming weeks." AFTRA said Jan. 28 that the proposed merger plan will be mailed to its members on or about Feb. 27, with a ballot return and tabulation deadline of March 30.  

Employer Trustees Need to Agree.

"Both pension plans and both health plans are jointly trusteed with representatives of the contributing employers. A vote to merge would require both the union representatives and the employer representatives to agree to a merger," Lerner added.  

Lerner and a handful of other analysts cited in the SAG-AFTRA review made it clear that a merger of the plans would be legally feasible. Some added that such multiemployer plan mergers are common, and are not especially complicated.  

Moreover, several of the analysts cited in the review said that such mergers are permitted under the Employee Retirement Income Security Act and that the Pension Benefit Guaranty Corporation, which has the authority to review and block such mergers, generally favors them, if certain conditions can be met.  

But to get there, the majority of the trustees of each plan, including those representing the various employer groups (networks, studios, producers, advertising firms, videogame makers, etc.) "would have to conclude separately that a merger would be in the best interests of the plan participants," Lerner wrote.  

That, in turn, would require a detailed study by each fund's actuary, in consultation with other professional advisers and fund staff, to determine the likely financial impact of each alternative.  

And because there is no legal requirement that multiemployer plans be merged merely because the sponsoring union of such plans has merged with another union, "each plan's board of trustees is free to accept or reject any merger proposal," Lerner said.  

A Merged Plan Cannot Lower Benefits.

One of the conditions that any such merger of pension plans must meet is the requirement contained in ERISA Section 4231(b)(2) that the merger not leave any participant's accrued benefit less after the merger than it would have been immediately before the merger.  

However, for certain highly compensated performers, that condition could run afoul of tax code Section 415, which caps, at $ 195,000 per year, the maximum annual dollar limit a plan may pay a pension plan participant, Scott Witlin said Feb. 1. Witlin, a partner with Barnes & Thornburg has served as lead negotiator for video game makers in contract negotiations with SAG and AFTRA.  

Witlin cited the example of a successful star of motion pictures (the SAG pension plan) who then transitioned to a career in television (the AFTRA plan). Under the current system, he or she would be eligible for the maximum from both separate plans, but under a merged plan, the Section 415 cap still would apply, he said.  

In her review, Lerner said the bargaining parties, or the trustees, "may be able to alleviate, at least in part, the impact of the reduction, by adopting alternative benefit structures."  

A Health Plan Merger Seen as Less Complicated.

The analysts agreed that combining the health plans would be less burdensome than the ERISA and IRS-regulated pension plans. In the feasibility review, SAG and AFTRA suggested that they could jointly rebid all major health plan provider contracts, with the result that members from both unions would have the same health care delivery networks.

On the pension side, the two unions could jointly rebid outside consultant services, the unions said. And they could combine administrative offices for all the plans to produce administrative savings. One step might be to "design a pension plan structure(s) that would maximize future pension benefits, consistent with the legal obligation to protect and preserve already accrued benefits," the review said.  

Combining health and retirement plans is important to SAG and AFTRA members because many perform some work under SAG contracts (generally motion pictures), and other work under AFTRA contracts (largely television, radio, and other performance work).  

The situation, at least for less-than-household-name performers, is that earnings under one contract often are not enough to make them eligible for benefits, while combined earnings under a unified plan might bring them up to the eligibility threshold.  

In a blog titled "The Merger That Solves Nothing" posted on his law firm's website, Witlin said agreeing to merge the unions without solving the benefit plan issues "is like putting the cart before the horse."

"If the merger goes through, in order to appease the members who have agreed to this combined entity, the union will have to achieve a solution to the split benefit issues," Witlin stated. "However, the SAG and AFTRA pension plans each have deficits hundreds of millions of dollars in magnitude."

"The employers are going to resist having to cough up hundreds of millions of dollars to solve the new Union's problem," he added. "That is why, if the merger does get approved, there are going to be many unhappy members down the line."

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