Compliance April 22, 2020

Social Security Reports Comparable Projections from 2019

However, the estimates do not reflect the potential outcomes due to the COVID-19 pandemic, says the Social Security Board of Trustees. 

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The Social Security Board of Trustees has released its annual report on the long-term financial status of Social Security Trust Funds.

The findings from the “2020 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds” show comparable numbers to last year’s report. It suggests combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) are projected to be depleted in 2035, with 79% of benefits payable. Separately, the OASI Trust is said to be exhausted a year earlier in 2034, with 76% of benefits payable. The DI Trust Fund is estimated to deplete in 2065, with 92% of payable benefits.

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The board says that while these estimates are current, they do not reflect potential outcomes following the COVID-19 pandemic. “The projections in this year’s report do not reflect the potential effects of the COVID-19 pandemic on the Social Security program. Given the uncertainty associated with these impacts, the trustees believe it is not possible to adjust estimates accurately at this time,” says Andrew Saul, commissioner of Social Security. “The duration and severity of the pandemic will affect the estimates presented in this year’s report and the financial status of the program, particularly in the short term.”

Other findings show Social Security paid a total benefits amount of $1.048 trillion during 2019. There were about 64 million beneficiaries at the end of the calendar year, and an estimated 178 million people had earnings covered by Social Security and paid payroll taxes, according to the report.

Total income, including interest, to the combined OASI and DI Trust Funds amounted to $1.062 trillion in 2019. The Social Security Board of Trustees says $944.5 billion of this amount was from net payroll tax contributions, $36.5 billion was from taxation of benefits and there was $81 billion in interest. Total expenditures from both funds amounted to $1.059 trillion, and asset reserves increased by $2.5 billion, for a total of $2.897 trillion.

The board announced its total annual cost of the program is projected to exceed total annual income in 2021—the first time since 1982— and remain higher throughout the 75-year projection period. As a result, asset reserves are expected to decline during 2021. Social Security’s cost has exceeded its non-interest income since 2010.

More findings from the 2020 report can be found here.

Compliance April 22, 2020

Court Backs Union in InterContinental Pension Withdrawal Liability Suit

A federal district court in New York has refused to dismiss a lawsuit claiming the InterContinental Hotels Group owes accelerated withdrawal payments to a national union pension plan.

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The U.S. District Court for the Southern District of New York has issued an interim ruling in the lawsuit known as The National Retirement Fund v. InterContinental Hotels Group, determining that the litigation should not be summarily dismissed.

Plaintiffs in the union pension funding liability lawsuit include the National Retirement Fund (NRF) and its board of trustees, who brought the underlying suit based on the Employee Retirement Income Security Act (ERISA). Named as the sole defendant is the InterContinental Hotels Group Resources (IHG).

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According to the text of the pro-plaintiff ruling, prior to NRF’s filing of this action, IHG initiated arbitration proceedings to dispute the union pension fund’s withdrawal liability assessment. The arbitration is ongoing and, in fact, is “concurrent with this action.”

At stake in this ruling is the question of whether refusal to provide information to help a multiemployer pension fund determine withdrawal liability for one of its members constitutes a default, therefore making the full withdrawal liability payment immediately payable.

“NRF alleges that IHG failed to respond to NRF’s information requests,” the ruling states. “NRF allegedly crafted these requests to determine the risk that IHG would be unable to pay its withdrawal liability in accordance with the terms and schedule set forth in the fund’s trust agreement. NRF alleges that IHG’s failure to respond to its information requests constituted a default under the trust agreement.”

The text of the ruling notes that the trust agreement “provides that a default permits NRF to demand that IHG accelerate payment of the full amount of its withdrawal liability.”

“Because ERISA mandates that any dispute regarding withdrawal liability be submitted to arbitration in the first instance, the court cannot rule on the merits of the underlying withdrawal liability dispute at this time,” the ruling stipulates. “Rather, the court is limited to assessing whether NRF has plausibly alleged a breach of the trust agreement, pending the arbitrator’s final decision on the merits.”

The decision concludes this assessment rather quickly by ERISA litigation standards, requiring just 17 pages to explain that NRF has, in fact, plausibly alleged that the fund’s trust agreement provides that an employer’s failure to respond to an information request constitutes a default and that IHG indeed failed to respond to an information request.

“NRF has adequately pleaded its acceleration claim,” the ruling states. “Accordingly, IHG’s partial motion to dismiss is denied.”

The decision goes on to detail the fact that the parties do not dispute that, if there is a valid default under ERISA Section 1399(c)(5)(B), NRF can require IHG to pay its full withdrawal liability on an interim basis “during the pendency of arbitration.” Thus, the court is “limited to determining whether—assuming the trust agreement’s insecurity default provision is valid under ERISA, a question that must be determined by the arbitrator in the first instance—NRF has plausibly alleged a default within the meaning of the trust agreement.”

“Because courts may not determine in the first instance whether the trust agreement is consistent with ERISA, the withdrawal liability inquiry at the motion to dismiss stage is narrow,” the ruling explains. “To survive a motion to dismiss, the fund must plausibly allege that it adopted rules setting forth events indicating a substantial likelihood that the employer will be unable to pay its withdrawal liability and that, based on the occurrence of one or more such events, a default occurred.”

The ruling then states that, because NRF alleges that it adopted its information request default rule based on the substantial likelihood that employers that fail to respond to such requests will not pay their withdrawal liability and that IHG defaulted by failing to respond, NRF’s complaint “contains sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” IHG’s arguments to the contrary, the court says, are “unpersuasive.”

The full text of the ruling is available here.

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