Don’t “Default” to the Fund’s View of Withdrawal Liability

A recent case out of the U.S. District Court for the Northern District of Illinois provides an interesting window into how opportunistic pension funds attempt, and sometimes succeed, in taking advantage of employers and perhaps recovering more than the amount to which they are entitled under the Multiemployer Pension Plan Amendments Act (“MPPAA”).

Background

In United Food and Commercial Workers International Union-Industry Pension Fund v. Gordon, Case Number 1:21-cv-01585, the UFCW pension fund declared the withdrawn employer to be in “default” and accelerated the outstanding amount of withdrawal liability it had previously assessed. In a complaint brought against the owner of a now-defunct Connecticut food distributor, the fund alleged that it had previously assessed the withdrawn employer $2,350,762.00 in withdrawal liability as a result of its shutting down in the summer of 2020. Of course, under the MPPAA’s 20-year payment cap, withdrawal liability is limited to no more than 20 annual payments, calculated pursuant to the statute. Thus, the fund prepared an installment schedule which demanded the withdrawal liability be paid in 80 quarterly installments of $11,216.00. One does not have to be very good at math to realize that this schedule limited the total withdrawal liability to $897,280.00, payable over twenty years.

The complaint further alleged that shortly after receipt of the assessment the owner requested a waiver of the assessed withdrawal liability because the company no longer existed and had no assets. This request, and the owner’s subsequent failure to make the first scheduled payment, caused the fund to declare the employer in default. Finally, the complaint alleged that the employer had failed to either request review or initiate arbitration, “foreclosing any challenge to the Fund’s assessment and fixing the amounts due.”

However, rather than merely claim entitlement to immediate payment of the “outstanding” 80 quarterly payments pursuant to its assessed installment schedule, the fund asserted the right to collect the more than $2.3 million in (what must have been the) total unfunded vested benefits attributable to the withdrawn employer, as well as a 20% penalty, interest, and attorneys’ fees. Thereafter, the parties engaged in settlement talks, which ultimately resulted in the court signing off on a consent judgment in which the employer agreed to pay $1,454,500.00, approximately half the total amounts claimed by the fund, but well above the amount due pursuant to the 20-year schedule of payments.

This case appears to follow a trend in recent years in which funds have become more aggressive and creative in using the concept of statutory default to their advantage. In fact, as the case illustrates, some funds take the position that in a default situation they can ignore the MPPAA’s 20-year payment cap on withdrawal liability payments. A few key points (and there are others) should equip withdrawn employers to push back against this trend.

Discussion

First, withdrawal liability must be assessed and paid in level installments for a period not exceeding twenty years. The MPPAA states that a withdrawn employer must pay its withdrawal liability “over the period of years necessary to amortize the amount in level annual payments” and “[i]n any case in which the amortization period … exceeds 20 years, the employer’s liability shall be limited to the first 20 annual payments[.]”[i] The level annual payments “shall be payable in 4 equal installments due quarterly, or at other intervals specified by plan rules.”[ii] Moreover, to provide proper notice under the MPPAA, a fund’s withdrawal liability assessment must include the “schedule for liability payments” and “demand payment in accordance with the schedule.”[iii] Once assessed, an employer’s withdrawal liability “shall be payable in accordance with the schedule set forth” by the fund.[iv]

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[Webinar] Withdrawal Liability and Pensions

CaptureOn Wednesday, April 14th at 1:00 P.M. EST, join Mark M. Trapp for a webinar regarding Withdrawal Liability and Pensions.

This webinar will address the significant challenges faced by companies participating in multiemployer plans. Specifically, it will help unionized employers understand and analyze what is often the most critical challenge facing their business – multiemployer pension withdrawal liability. It will also address pension-related provisions of the recently-enacted American Rescue Plan Act.

Participants will learn about the following: Continue reading

Announcing Conn Maciel Carey’s 2021 Labor and Employment Webinar Series

2021 Labor and Employment Webinar Series

The legal landscape facing employers seems as difficult to navigate as it has ever been.  Keeping track of the ever-changing patchwork of federal, state and local laws governing the workplace may often seem like a full-time job whether you are a human resources professional, in-house attorney or  business owner.  Change appears to be the one constant.  As President Trump’s Administration comes to an end, employers will continue to closely track the changes taking place at the NLRB, the DOL and the EEOC.  At the same time, a number of states will continue introducing new laws and regulations governing workplaces across the country, making it more important than ever for employers to pay attention to the bills pending in the legislatures of the states where they operate.  This complimentary webinar series will focus on a host of the most challenging and timely issues facing employers, examining past trends and looking ahead at the issues most likely to arise.

Conn Maciel Carey’s complimentary 2021 Labor and Employment Webinar Series, which includes (at least) monthly programs put on by attorneys in the firm’s national Labor and Employment Practice, is designed to give employers insight into legal labor and employment developments.

​To register for an individual webinar in the series, click on the link in the program description below. To register for the entire 2021 series, click here to send us an email request, and we will register you. If you missed any of our past programs from our annual Labor and Employment Webinar Series, click here to subscribe to our YouTube channel to access those webinars.


2021 Labor & Employment Webinar Series – Program Schedule

California Employment Law Update for 2021

Wednesday, January 20th

Marijuana, Drug Testing and Background Checks

Tuesday, July 13th

COVID-19 Vaccine: What Employers Need to Know

Thursday, February 11th

Employee Misconduct Defense & Employment Law

Wednesday, August 11th

Employment Law Update in D.C, MD, VA and Illinois

Wednesday, March 24th

Employee Handbooks, Training and Internal Audits

Tuesday, September 21st

Withdrawal Liability Pensions

Wednesday, April 14th

NLRB Update

Tuesday, October 19th

ADA Website Compliance Issues –  Best Strategies for Employers

Tuesday, May 18th

Avoiding Common Pitfalls: Non-Compete, Trade Secrets and More!

Wednesday, November 10th

What to Expect from DOL Under the Biden Admin.

Wednesday, June 16th

Recap of Year One of the Biden Administration

Tuesday, December 14th

   

See below for the full schedule with program descriptions, dates, times and links to register for each webinar event.

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Jersey Boys Gets No Love in Vegas

A recent opinion from a Nevada federal district court serves as a good reminder to those litigating withdrawal liability assessments of the rather mundane issue of burden of proof. Namely, that an assessment of withdrawal liability is presumed correct unless the employer proves otherwise.

The case, Nevada Resort Association — International Alliance of Theatrical Stage Employees and Moving Picture Machine Operators of the United States and Canada Local 720 Pension Trust v. JB Viva Vegas LP, (D. Nev. 2:19-cv-00499), dealt with the so-called “entertainment industry exception” to withdrawal liability for work performed in the entertainment industry. Section 4203(c)(1) of ERISA provides that in the entertainment industry, a complete withdrawal occurs only if an employer ceases to have an obligation to contribute under a plan, but nevertheless performs previously covered work in the jurisdiction of the plan anytime within five years after its obligation to contribute to the fund ceased.

In September of 2016 the Las Vegas producer of the musical “Jersey Boys” shut down its long-running show. In assessing the producer withdrawal liability, the pension fund determined that the entertainment industry exemption did not apply because, although it had once been, the fund was no longer a fund in the entertainment industry due to the fact that many of the contributing employers’ employees performed work in the convention industry, rather than the entertainment industry. The producer challenged this determination in arbitration.

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The PBGC Acts to Level Withdrawal Liability’s Procedural Playing Field

shutterstock_pensionThe 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 Continue reading

Third Circuit Rebuffs Pension Fund’s Attempt to Assess Partial Withdrawal Liability

Under the Multiemployer Pension Plan Amendments Act (“MPPAA”), an employer can be liable to a multiemployer pension fund if it partially withdraws from that fund either by reducing its contributions by 70 percent over a three-year period, or where “there is a partial cessation of the employer’s contribution obligation.” 29 U.S.C. § 1385(a).

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A “partial cessation” can occur in two different ways. The first is through a so-called “CBA take-out,” where the employer ceases to have an obligation to contribute under one or more, but fewer than all, of its collective bargaining agreements (“CBA”)s. The second is a “facility take-out,” where the employer ceases its obligation to contribute with respect to work performed at one or more, but fewer than all, of its facilities. In either case, the employer must continue to perform the work for which contributions were previously required. See 29 U.S.C. § 1385(b)(2)(A).

In a recent case, the Third Circuit Court of Appeals rebuffed a multiemployer plan’s attempt to broaden the application of the CBA take-out provision. Instead, in Caesar’s Entertainment Corp. v. International Union of Operating Engineers Local 68 Pension Fund, Case No. 18-2465 (3d Cir. Aug. 1, 2019), the Court Continue reading

Seventh Circuit Hits the Brakes on Pension Fund’s “Deceleration” Attempt

In a rare win for employers, the Seventh Circuit recently held that ERISA’s six-year statute of limitations barred a multiemployer pension fund’s claim for withdrawal liability against the withdrawn employer.

The case, Bauwens v. Revcon Tech. Group, Inc., No. 18-3306 (7th Cir. 2019), involved an increasingly common scenario, namely, where a pension fund holds a withdrawn employer in “default” for missing an installment payment of its withdrawal liability and failing to cure for sixty days after notice.

Bauwens

In such an instance, the Multiemployer Pension Plan Amendment Act (“MPPAA”) allows the fund to “require immediate payment of the outstanding amount” of the employer’s withdrawal liability. See 29 U.S.C. § 1399(c)(5).

In Bauwens, the company fell into default five separate times over the course of twelve years; but each time entered into a settlement agreement with the fund to resume installment payments in exchange for the fund dropping its collection suit seeking the entire accelerated amount. Finally, on the sixth such default, the fund again brought a collection suit, to which the employer asserted ERISA’s six-year statute of limitations. The court held Continue reading

NLRB General Counsel’s Comment Indicates Expected Restoration of Pro-Employer Precedent

During a recent conference at New York University, NLRB General Counsel, Peter Robb, hinted at the forthcoming restoration of more than fifty years of precedent allowing employers to cease withholding union dues after the expiration of the collective bargaining agreement containing the so-called “dues check-off” provision.

shutterstock_gavel.jpgAs reported by Law360, Robb referred to the 2015 Obama-era decision overturning that precedent as “misguided,” and stated further: “I think unless there’s clear language that the dues check-off should continue, it shouldn’t.” Prior to that 2015 decision, the Board had, since 1962, consistently held that dues check-off provisions, which implement union security provisions by providing for the automatic deduction of union dues, could be cancelled by employers upon contract expiration. See Bethlehem Steel Co., 136 NLRB 1500 (1962).

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Grab Your Wallet Before the PBGC Does – Their Proposed Regulation Could Cost Employers Greatly

shutterstock_pensionIn December 2014, Congress passed and President Obama signed the Multiemployer Pension Reform Act of 2014 (“MPRA”). The objective of the MPRA was to shore up struggling multiemployer pension plans, many of which are severely underfunded and getting worse. Among other things, the MPRA provided employers an incentive to continue participation in “endangered” or “critical” status plans by mandating that any increases to the employer’s contribution rate after 2014 will not count against the employer for purposes of determining withdrawal liability.

Because the funded status of many of these plans is so low, this provision can mean significant savings for employers who withdraw from plans in critical or endangered status. The rehabilitation plans of typical critical status multiemployer plans have called for contribution rate increases anywhere from 4-8% or more annually so, in the five years since 2014, many employers have seen cumulative rate increases of from 20-25%, or more. But because Continue reading