Multiemployer Plan Withdrawal Liability Can Be Trap For The Unwary

Multiemployer pension plans have a deceptive simplicity for many employers: contributions are paid for hours worked in accordance with the labor agreement and employees accrue pension benefits without the employer incurring actuarial, tax, legal or other administrative expenses. Unfortunately, multiemployer plans create hidden liabilities that potentially impact the employer, its affiliated businesses and possibly its owners.

Most multiemployer plans are not fully funded, and current contributions are just the beginning of the liabilities. Under ERISA, an employer withdrawing from a multiemployer plan is liable for the employer's share of the plan's unfunded vested benefits. In addition, all trades or businesses under common control (the controlled-group) are jointly and severally liable for withdrawal liability of the employer.

A recent court case illustrates this unexpected liability. The Seventh Circuit Court of Appeals held an individual personally liable for withdrawal liability because the individual owned the stock of the withdrawing corporate employer and also engaged in activities that qualified as trades or businesses by (i) owning and leasing property to the employer; and (ii) providing management services as an independent contractor. Central States, Southeast and Southwest Areas Pension Fund v. Nagy, 2013 U.S. App. LEXIS 7912 (7th Cir. 2013). In so holding, the Seventh Circuit confirmed that certain leasing activity is categorically a trade or business for purposes of individual liability under ERISA.

Multiemployer Pension Plan Withdrawal Liability

Under ERISA, an employer withdrawing from a multiemployer plan is liable for the employer's share of the plan's unfunded vested benefits. Upon that withdrawal, the plan determines the amount of the liability, notifies the employer of that amount and collects it from the employer.

Any significant reduction in the duty to contribute, including layoffs, plant closures, sales or changes in the collective bargaining agreement, can trigger a complete or partial withdrawal from a plan, resulting in imposition of withdrawal liability to the employer and its controlled-group members.

Under ERISA Section 4001(b)(1), all employees oftrades or businesses (whether or not incorporated) that are under common control are treated as employed by a single employer and all such trades and businesses are treated as a single employer. Based upon that section, the courts have long held that eachtrade or...