Multiemployer pension plans are defined benefit retirement plans maintained pursuant to a collective bargaining agreement between employers and a union. A defined benefit plan is a retirement plan structure that guarantees a specific retirement benefit at retirement. The benefit amount may either be a pre-established set amount, or an amount based on a specific formula which typically considers factors such as time of employment and age. In 1974, Congress passed the Employee Retirement Income Security Act (“ERISA”) to regulate these plans, among others, and to protect the retirement benefits that these plans create for their participants. ERISA also established the Pension Benefit Guaranty Corporation (the “PBGC”), which federally insures the retirement benefits of a defined benefit plan if it terminates.
In 1980, Congress enacted the Multiemployer Pension Protection and Accountability Act, which introduced the concept of Withdrawal Liability. The purpose of these rules was to relieve the financial burden placed upon remaining contributors to a multiemployer plan when one or more of them withdraws and to also encourage prospective new employers to enter the plan. Under these rules, when an employer withdraws from a multiemployer plan, it is assessed a “withdrawal liability” that is based on plan’s unfunded vested benefits. To calculate the liability, the plan uses a variety of factors, such as the valuation of the plan’s assets, liability, and a reasonable rate of interest. The plan administrator will then provide the withdrawing employer with a notice of the calculation and a payment schedule. The employer can then challenge the calculation and payment schedule through both negotiations with the plan and, if necessary, arbitration.
Sometimes it is not easy to determine whether the employer has withdrawn. For example, the employer could still be active in the industry but simply delinquent on its contributions. To resolve this question, ERISA permits a plan to request information from the employer to determine if a withdrawal has occurred. In other situations, the employer could try to purposefully avoid the assessment of withdrawal liability by entering into transactions, such as depleting the company’s assets, that would “prevent” the employer from having to pay the plan. In response, courts have established the concepts of successor liability and, in some cases, individual liability. Successor liability occurs when a purchaser of a company has notice of the withdrawing company’s liability and there is a sufficient continuation of business operations from one company to the other. Additionally, liability could be imposed on the individual owners of the withdrawing company themselves if there is sufficient evidence of intertwining business and personal management and assets.
In 2019, our firm successfully litigated a case entailing facts where owners of a company managed day to day operations of the company, managed assets of a company, sold the company and kept the proceeds for themselves, and sold its customer list, and a majority of its assets to another company. Those circumstances resulted in imposition of liability upon the successor company as well as individual liability upon the owners of the original company that withdrew from the plan. Therefore, when determining whether it is appropriate to assess withdrawal liability, a plan must consider all these factors before making a final determination.