Employer could withdraw from multiemployer defined benefit plan after plan entered critical status

The Pension Protection Act of 2006 (PPA; P.L. 109-280) did not prevent an employer from withdrawing from a multiemployer defined benefit plan after the plan entered critical status, according to the U.S. Court of Appeals in New York City (CA-2).

An employer and a union were parties to collective bargaining agreements (CBAs) that covered the employer’s unionized employees in two locations. The employer made contributions to a multiemployer defined benefit plan pursuant to the CBAs. Several months before the CBAs were going to expire, the plan trustees announced that the plan was in critical status as defined in ERISA §305(b)(2) and began drafting a rehabilitation plan. Because the rehabilitation plan would be part of any negotiations between the employer and the union concerning successor CBAs, the parties agreed to extend the existing CBAs. Before the CBAs expired, the trustees finalized the rehabilitation plan, which contained, as required by the PPA, several new schedules of reduced benefits and increased contributions—four non-default schedules and one default schedule.

After the rehabilitation plan was finalized, the employer and the union began to negotiate successor CBAs. As part of the negotiations, the parties considered the rehabilitation plan’s schedules and the possibility of the employer withdrawing from the plan. The trustees provided the employer with an estimate of its withdrawal liability under the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA; P.L. 96-364). Ultimately, after the CBAs had expired, the employer withdrew from the plan and entered new CBAs that included new 401(k) plans for the employees. The trustees responded that the PPA required the employer to contribute to the plan under the rehabilitation plan’s default schedule if the employer and the union did not agree on a non-default schedule within 180 days of the CBAs’ expiration as provided in ERISA §305(e)(3)(C). The employer replied that withdrawal was permissible and that it would only be liable for withdrawal liability as calculated under MPPAA.

The trustee bought suit against the employer, arguing that the PPA prevented the employer from withdrawing from the plan after the plan entered critical status. The trustees sought retroactive and prospective contributions from the employer under the rehabilitation plan’s default schedule. The employer moved and the trustees cross-moved for summary judgment. The district court granted summary judgment in favor of the employer and denied the trustees’ cross-motion. The trustees appealed the decision, contending that the district court misconstrued the PPA.

Nothing in PPA stops employer from withdrawing

The appellate court rejected the trustees’ argument and affirmed the district court’s decision. The appellate court first noted that it knew of no other court (other than the district court) that had considered whether the PPA prohibited employers from withdrawing from multiemployer pension plans in critical status. The court also noted that the PPA was silent on the issue. The court stated it was necessary, as part of statutory interpretation, to look at Congressional intent by reviewing the text and structure of the statute. Although there is no explicit statement in the PPA of an employer’s right to withdraw, the court found that the statute did appear to assume that there would be withdrawals in these circumstances by revising the calculation of withdrawal liability when the plan withdrawn from was in critical status. Specifically, ERISA §305(e)(9) provides that the calculations of an employer’s withdrawal liability should disregard contribution surcharges imposed automatically once a plan enters critical status and benefit reductions required by a rehabilitation plan.

The court also noted that, in enacting the PPA, Congress also amended other sections of ERISA concerning withdrawals and withdrawal liability without any indication of an intention to remove employers’ ability to withdraw from plans in critical status. The court regarded Congress’ silence on the removal of employers’ ability to withdraw from plans in critical status as significant “despite clearly having withdrawal and withdrawal liability on its mind.” The appellate court agreed with the district court and the employer that, in enacting the PPA, Congress did not intend to stop employers from withdrawing from multiemployer pension plans that were in critical status.

Source: Trustees of the Local 138 Pension Trust Fund v. F.W. Honerkamp Co. Inc. (CA-2).

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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