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Total Articles: 21

Multiemployer Pension Plans: Section 1405 – Limitation on Withdrawal Liability

Executive Summary: In a recent decision involving a withdrawal liability assessment by a multiemployer pension plan, an arbitrator reduced the assessment by approximately 50 percent and ruled in favor of the employer on several significant legal issues.

January 20, 2017; A Historical Day

This is another article in our series addressing the continued deterioration and downward spiral of multi-employer defined benefit pension funds and the resulting impact upon participants, unions and most importantly on employers.

Criminal Liability for Failure to Contribute to Multiemployer Benefit Fund?

The precarious financial status of some multiemployer benefit funds has led to criminal indictment against non-contributors. This troubling expansion of potential sanctions for failure to make required contributions to multiemployer benefit plans appears in a case from the U.S. District Court for the District of Massachusetts.

Arbitrator Slashes Annual Withdrawal Liability Payments in Underfunded Multiemployer Pension Plan Dispute

Employers who cease contributing to an ERISA multiemployer pension plan are liable for their allocable share of any underfunding, or “withdrawal liability.”

PBGC Issues Proposed Rule on Mergers and Transfers Between Multiemployer Plans

The Pension Benefit Guaranty Corporation (PBGC) recently released a proposed rule amending the agency’s regulations on mergers and transfers between multiemployer plans. The proposed rule would implement a section of the Multiemployer Pension Reform Act of 2014 (MPRA), which provides that the PBGC may offer assistance to multiemployer plans to facilitate plan mergers.

Tenth Circuit Expands Withdrawal Liability of Construction Industry Employer

In a case of first impression, the United States Court of Appeals for the Tenth Circuit held that work performed by a non-union company acquired after a construction industry employer ceased contributing to a multiemployer pension plan (MEP) triggered withdrawal liability. The case, Ceco Concrete Construction, LLC v. Centennial State Carpenters Pension Trust, Nos. 15-1021, 15-1190 (10th Cir. May 3, 2016), should be paid close heed by unionized construction companies.

Crash Landing for Central States – What now for Multi-employer Pension Funds?

In the aftermath of the rejection of the Central States Southeast and Southwest Areas Pension Plan (“Central States”) application to reduce core benefits by Treasury Special Master Kenneth Feinberg, it is critical that contributing employers to multi-employer pension funds recognize the harsh reality that help to those funds will not be forthcoming from the government in at least the near term.

Private Equity Funds Found Liable For Multiemployer Pension Obligations of Portfolio Company

In a significant decision for both private equity funds and multiemployer pension plans, the U.S. District Court for the District of Massachusetts held last week in Sun Capital Partners III, L.P. v. New England Teamsters & Trucking Industry Pension Fund that a related group of private equity funds are responsible for pension withdrawal liability assessed against a bankrupt portfolio company owned by the funds.

Multiemployer Pension Plans Reduced Interest Rate Assumptions Dramatically Increase Withdrawal Liability

Many multiemployer pension plans are struggling financially today, and, according to the PBGC, about 10 percent of the 1,400 plans are expected to become insolvent within the next 10-15 years. These looming insolvencies were in large measure the motivation behind the 2014 law that now allows plans in "critical and declining" status to cut vested benefits.

The Continuing Downward Spiral of the Multi-Employer Pension Plan

We have been monitoring and reporting on several disquieting events which have occurred in the multi-employer pension plan world within the past few months.

Application by Central States Pension Fund to Reduce Core Benefits

Since the passage of the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”) the financial well-being of employers contributing to multi-employer defined benefit pension plans has been tied to the funding of those plans, many of which have been underfunded for decades. The downward spiral has been exacerbated by several unalterable factors: an increase in retirees, a decrease in active participants whose contributions support the retirees and an increase in life expectancy.

Recent Seventh Circuit Decision Finds That Multiemployer Pension Withdrawal Liability Can Automatically Transfer to Asset Purchase

In a recent decision that has important implications for purchasers of assets that come with a multiemployer union pension plan, the U.S. Court of Appeals for the Seventh Circuit held in Tsareff v. ManWeb Services, Inc., 794 F.3d 841 (7th Cir. 2015) that an asset purchaser’s awareness of a seller’s potential withdrawal liability was enough to make the purchaser responsible for the withdrawal liability, even where the asset purchase agreement did not include the withdrawal liability as an assumed liability. The decision is important because it arguably expands the circumstances under which an asset purchaser can be deemed responsible for a seller’s pension withdrawal liability.

Asset Purchasers Face Increased Exposure for the Multiemployer Pension Debts of Sellers

Both buyers and sellers in asset sale transactions should be cognizant of the ongoing erosion of the common law rule that the purchaser is not responsible for the seller’s liabilities absent a contractual assumption of such liabilities, as evidenced by a recent Ninth Circuit case finding that the theory of successor liability may be used to hold an asset purchaser liable for the predecessor’s $2.2 million withdrawal liability obligation to a multiemployer pension plan. Federal courts originally applied successor liability in the context of federal labor law where the successor employer had notice of an unfair labor practice and continued, without interruption or substantial change, the seller’s business operations. Over the years, this “successor liability” rule has been expanded to cover various other statutory liabilities under labor and employment law.

Multiemployer Pension Plans - Withdrawal Liability is Mounting

There are approximately 1,400 multiemployer pension plans and nearly 10 percent are projected to become insolvent within the next 15 years. Plan insolvency will trigger a termination and the assessment of withdrawal liability. Collectively, these plans have over $30 billion in unfunded liabilities. These plans are now being designated as in "critical and declining status" and have the authority to reduce benefits under the changes to the law made in 2014. While those benefit cuts, which require regulatory approval, may forestall insolvency for a while, they are not going to reduce any withdrawal liability over the next 10 years.

Federal Agencies Issue Regulations Governing Benefit Reductions and Partitions for Underfunded Multiemployer Pension Plans

On June 17, 2015, the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation (PBGC) released several regulatory measures implementing the multiemployer pension plan amendments that were enacted in December, 2014.

Updates to "Withdrawal Liability to Multi-Employer Pension Plans Under ERISA" White Paper

Labor & Employment Shareholders Charles B. Wolf and Patrick W. Spangler recently updated their white paper on Withdrawal Liability to Pension Plans Under ERISA, which has been used by Mr. Wolf and Mr. Spangler in prior meetings of the ERISA Litigation National Institute, presented by the American Bar Association. The paper was originally authored by Mr. Wolf.

Multiemployer Pension Reform

Employers and unions locked into failing multiemployer pension plans received an 11th-hour reprieve in late December when Congress passed legislation revising laws that had hobbled these plans for years. Titled the “Multiemployer Pension Reform Act of 2014,” the reforms give multiemployer trustees and the Pension Benefit Guaranty Corporation (PBGC) new tools to address plan underfunding, and seek to eliminate reasons employers abandon these plans prematurely.

Requiring Union to Indemnify Employer for Withdrawal Liability Does Not Violate Public Policy Under ERISA

The Sixth Circuit Court of Appeals recently held that a collective bargaining agreement (CBA) provision, which obligated a union to indemnify an employer for withdrawal liability did not violate public policy under the Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA). This issue was undecided in the Sixth Circuit, and the decision provides some much-needed guidance for employers. Shelter Distribution, Inc. v. Gen’l Drivers, Warehousemen & Helpers Local Union No. 89, No. 11-5450, Sixth Circuit Court of Appeals (March 16, 2012).

Contract Language on Pension Withdrawal Liability Does Not Violate Public Policy

In the case of Shelter Distribution, Inc. v. General Drivers, Warehousemen & Helpers Local Union No. 89, No. 11-5450 (6th Cir. Mar. 16, 2012), a court considered whether a collective bargaining agreement shifted employer withdrawal liability to a union. In Shelter Distribution, a multi-employer pension fund assessed withdrawal liability against an employer. In response, the employer attempted to enforce language contained in its collective bargaining agreement in which the union agreed to indemnify the employer if withdrawal liability was assessed by the pension fund. At arbitration, the union argued that the indemnification language violated the policy expressed in the Multiemployer Pension Plan Amendments Act which prohibits the shifting of withdrawal liability through collective bargaining agreements. The arbitrator rejected the Union’s argument, and ordered the union to pay the employer the withdrawal liability that was assessed by the pension fund. A district court upheld the arbitration award and the union appealed to the U.S. Court of Appeals for the Sixth Circuit.

FASB Enhances Disclosure Requirements for Employers Participating in Multiemployer Plans

To increase transparency, the Financial Accounting Standards Board (“FASB”) has imposed new disclosure requirements on nongovernmental employers participating in multiemployer plans in its recently issued Accounting Standards Update No. 2011-09, Compensation — Retirement Benefits — Multiemployer Plans (Subtopic 715-80): Disclosures About an Employer’s Participation in a Multiemployer Plan (the “Update”). Public entities must comply with these new disclosure requirements for fiscal years ending after Dec. 15, 2011; nonpublic entities must comply for fiscal years ending after Dec. 15, 2012. Though not required, the FASB is permitting early application of the disclosure requirements if employers are willing and able to provide the required information before the applicable effective date.

High Noon for Multiemployer Pension Plans.

Certain notice and funding provisions of the Pension Protection Act (PPA) became law January 1, 2008, and the first impact of these requirements is about to be felt. On or about March 30 most multiemployer pension plans will be sending status notices to employers and others. Many of these notices will contain bad news, although some will not. Here's what's going on in somewhat non-technical terms.