South Bend / Mishawaka, IN – The Employer Retirement Income Security Act of 1974 (“ERISA”) was enacted to provide safeguards and minimum standards with respect to the establishment, operation and administration of employee pension plans. In 1980, Title IV of ER
ISA was amended by the Multiemployer Pension Plan Amendments Act (“MPPAA”). The purpose of the MPPAA was to protect the financial stability of multiemployer pension plans by keeping employers as participants in those plans. The MPPAA means for doing so was the creation of “withdrawal liability”, which requires employers that withdraw from multiemployer pension plans to pay a share of the plan’s unfunded vested benefits.
The general rule under the MPPAA regarding withdrawal liability is, “If an employer withdraws from a multiemployer plan in a complete withdrawal (permanently ceases to have an obligation to contribute under the plan; or permanently ceases all covered operations under the plan) or a partial withdrawal, then the employer is liable to the plan in the amount determined . . to be the withdrawal liability.
As it relates to a complete withdrawal, certain industries, such as the building and construction industry, have distinct types of complete withdrawals, the discussion of which are beyond the scope of this article.
So what is withdrawal liability? Withdrawal liability is the employer’s share of the shortfall between the plan’s liability for vested benefits (at present value) and its assets, the unfunded vested benefits (UVB). Withdrawal liability is therefore based on the employer’s designated or portioned share of the plans UVB. The present value of the vested benefits is the amount needed, in today’s dollars, to pay all non-forfeitable benefits as they become due. When withdrawal liability is triggered, things begin to happen.
The first step in the withdrawal liability process is for the plan’s trustees to issue a notice and demand for payment. The trustees are required to do this “as soon as practicable” after withdrawal. An employer that receives a notice of withdrawal from the plan has ninety (90) days from the date of receipt to ask the trustees to review the assessment, namely:
(1) To ask the plan sponsor to review specific matters concerning the determination of liability and the payment schedule;
(2) To identify any inaccuracies in the determination of the amount of UVB’s allocable to the employer; and
(3) To furnish additional information to the plan sponsor.
Note: Notice and demand are important procedural steps. A timely request for review is a necessary prerequisite to an employer’s demand for arbitration of its withdrawal liability assessment.
Any dispute between an employer and the plan sponsor of a multiemployer plan concerning a withdrawal liability determination made under ERISA must be submitted to arbitration.
In such instance, if the employer is dissatisfied with the trustee’s decision on review, or there is no decision, the employer must initiate arbitration within the prescribed period, set forth below.
For either party to compel arbitration of a dispute, the arbitration proceeding must be initiated within the sixty (60) day period after:
(1) The date of the plan sponsor’s notification to the employer of its decision on review; or
(2) 120 days after the date of the employer’s request for review.
As an alternative, the parties may jointly initiate arbitration within the 180-day period after the date of the plan sponsor’s demand.
The above noted time periods are strictly construed. Therefore, proper and timely initiation of the arbitration process is critical to the preservation of an employer’s defenses and objections to a withdrawal liability assessment. Employers that do not act within the prescribed time limits may be foreclosed from later challenging an assessment. Further, requesting arbitration without properly initiating the arbitration process can constitute a default by the employer.
Bottom line: Failure to timely demand arbitration in accordance with ERISA requirements will result in a waiver of defenses, and the plan trustees can enforce their claim for withdrawal liability in summary proceedings against the employer.
If no arbitration proceeding has been initiated within the prescribed time limits, the amounts demanded by the plan trustees under ERISA will be due and owing based on the fund’s schedule.
Noteworthy is the fact that courts are generally not sympathetic to employers who have failed to initiate arbitration in a timely manner. Many courts have concluded that the plan is entitled to judgment in its action for collection (of withdrawal liability) without judicial consideration of the employer’s defenses that could have been raised in arbitration. “If a corporation follows this course (doing nothing), it gambles that it will not later be found to be … the withdrawn employer … risks losing the possibility of review and arbitration and risks default. When a corporation chooses this latter course the result … is but a self-inflicted wound.”
In the arbitration process, the arbitrator’s award is only reviewable on appeal by a district court. However, the arbitrator’s findings can be reversed if the losing party shows that the decision was incorrect “by a clear preponderance of evidence,” a “definite and firm conviction that a mistake has been committed.”
One final point. In a recent case, it was determined that withdrawal liability payments made under and pursuant to the Multi-Employer Pension Plan Amendments Act (MPPAA) are “pay now, dispute later” provisions, which require interim withdrawal liability payments to be made pending the outcome of arbitration. The plan language of the MPPAA mandates these payments thereby divesting the courts of their power to say otherwise. In a word “arbitration reigns supreme for withdrawal liability disputes.” (Findlay Truck Line, Inc. v. Central States, Southeast & Southwest Areas Pension Fund, Sixth Circuit Court of Appeals, August 9, 2013).
This article is for general guidance only and is not intended as legal advice. When withdrawal liability issues arise in your workplace, a telephone call to an experienced labor attorney is recommended.
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