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April 16, 2014

Anatomy of NFL Referees' Lockout

Although some fans of the NFL may think it happened too late to save their team’s season, the membership of the NFL Referees Association is back at work after the National Football League and the union of its officials reached an agreement settling a three month labor dispute. Given the popularity and financial success of the NFL, which success was threatened when the NFL locked out its referees and substituted them with replacement refs, many may wonder why such a dispute took place at all.

The key issues at stake in the NFL/referee labor dispute are frequent topics of contention in labor negotiations –salaries and retiree benefits. As to the retiree benefits, the NFL has in place a defined benefit plan, which provides a specific monthly benefit to employees at retirement. Because of the growing costs associated with its defined benefit plan, the NFL sought to replace it with a defined contribution plan (such as a 401(k) plan), where the retirement benefit is defined by the nature of contributions to the plan. This is a common step taken by many employers, both organized and non-union, as they seek to replace costly defined benefit plans with more economical defined contribution plans. Not surprisingly, employees favor defined benefit plans despite the cost to employers.

Under the terms of the settlement, the NFL will maintain the defined benefit plan for current referees for the next five seasons or until they earn 20 years of service, at which point the plan will be frozen and future benefits will accrue only under a newly-established defined contribution plan. Newly-hired referees will not be able to participate in the defined benefit plan, but will be able to take advantage of the defined contribution plan. Similar to other employers that have elected to transition from a defined benefit plan to a defined contribution plan, the NFL will have to comply with the relevant provisions of ERISA, including the funding requirements for these plans. The technical aspects of transitioning from defined benefit plan to a defined contribution plan requires qualified advice on a host of legal, accounting and actuarial issues.

While the fans of the Green Bay Packers may have issue with the effect of the replacement referees on a recently disputed football game that took place during the lockout, the shareholders of the Green Bay Packers (over 100,000 strong as the rare publicly owned sports franchise) will likely have appreciation for the cost certainty resulting from the settlement of the lockout.

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About the Author

Tyrone Thomas, Employment, Education, Attorney, Mintz Levin
Associate

Tyrone advises boards, presidents, and other senior executives of colleges and universities on terms for employment and consulting agreements.  He frequently provides counsel regarding best practices for compensation, benefits, and post-employment covenants for executive contracts.  He has prepared numerous deferred compensation plans, performance incentive programs and separation agreements for health care systems, foundations, trade associations and academic institutions.  In the course of his practice, he has advised on executive employment arrangements involving over 100...

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