The recent action by the Pension Benefit Guaranty Corporation (“PBGC”) to rein in run-away filing fees imposed by the American Arbitration Association (“AAA”) brings to mind Homer Simpson’s declaration that alcohol was “the cause of, and solution to, all of life’s problems.” In a like manner, the PBGC can be seen as the cause of, and now (happily) the solution to, the very steep filing fees previously imposed by the AAA on withdrawn employers.
By way of background, for many years, employers assessed withdrawal liability faced a Hobson’s choice: either pay the fees demanded by the AAA to initiate arbitration, or forego any chance to challenge the assessment. Of course, by failing to initiate arbitration, the amounts demanded by the pension fund become, in the words of the statute, “due and owing on the schedule set forth by the plan sponsor.”
This unpleasant situation for employers – pay up, or else – was set in motion by a PBGC regulation that allows pension funds to impose the AAA rules (and the required filing fees) on withdrawn employers. That regulation purports to allow funds unilaterally to require through their plan documents the use of a so-called “alternative” (i.e., PBGC-approved) arbitration procedure “in lieu of” the procedures promulgated by the PBGC through notice and comment rulemaking. But under the properly promulgated PBGC procedures, a withdrawn employer can initiate arbitration through simple notice to the fund, with no filing fee required.
Beginning shortly after the PBGC put forth its default regulations, funds began requiring employers to utilize the AAA and pay the mandated filing fees to initiate arbitration. This rapidly evolved into an extra-statutory payment to initiate arbitration, enforced on penalty of employers losing their right to contest an assessment, with several courts sanctioning the arrangement.
For twenty-seven years, employers tolerated this situation, largely because the required filing fees (ranging from $650.00 to $1,450.00) were usually considered a minor amount in comparison with the typical withdrawal liability assessment involving millions of dollars. However, in 2013, without ever seeking or obtaining PBGC permission, the AAA unilaterally amended its rules and drastically increased its required filing fees. For example, under the 2013 rules, the fees charged (which do not include the arbitrator’s fees) often exceed $10,000.00 and in large cases could go as high as $77,500.00.
With this huge increase in filing fees, the funds’ advantage over withdrawn employers increased. Following litigation which put its filing fees in jeopardy, in 2016 the AAA filed an application with the PBGC, asking it to approve the large increases. Finally, on December 9, 2019, the PBGC published in the Federal Register its Notice of Approval of the AAA’s request. While the PBGC approved the request, it did so contingent on several provisions which go some distance towards leveling the playing field between withdrawn employers and their pension funds.
The PBGC approval was based on three significant concessions in the new version of the AAA rules. First, in response to the public comments it received, the PBGC required a reduced fee schedule. Going forward, for withdrawal liability disputes involving amounts of less than one million dollars, the filing fee is $2,500.00. For disputes involving amounts between one million and five million dollars, the fee is $3,750.00. Finally, for amounts of $5 million and above, the fee is $5,000.00.
Somewhat surprisingly, consistent with existing PBGC regulations, the PBGC also acted to ensure that the filing fee is split between the employer and the fund. Thus, even for the most expensive case, a withdrawn employer will be out of pocket only $2,500.00 – half the maximum five-thousand-dollar fee.
The PBGC also more closely aligned the AAA rules regarding the appointment of the arbitrator to the default PBGC regulations. Now, consistent with the PBGC regulation, a party has 10 days to object to the appointment of an arbitrator, whereas previously the AAA assumed the right unilaterally to make the final appointment of an arbitrator where the parties could not agree.
Finally, the PBGC even took steps to ensure that the AAA will never again unilaterally increase its rates, noting at the conclusion of the Notice that “future changes, including changes to the applicable fee schedule will be subject to PBGC review[.]”
Overall, these changes are a welcome development for employers, as they somewhat level the playing field and make it easier to challenge an assessment of withdrawal liability. In particular, the high fees were a sore spot and constituted a real hurdle to many smaller employers faced with an assessment. While not perfect, the new procedures are much more fair than the rules they replaced. And for that the PBGC deserves our thanks. So here’s to the PBGC – the cause of, and (partial) solution to, exorbitant filing fees in multiemployer pension arbitrations!