Don’t White-Knuckle Withdrawal Liability
It’s no secret that the statutory deck under ERISA is stacked heavily in favor of multiemployer pension plans (MEPPs) and against employers contributing to (or withdrawing from) Taft-Hartley trust funds. For example, an employer who receives a demand to pay its alleged allocable share of a multiemployer pension plan’s unfunded vested benefits (Withdrawal Liability) will generally only have 90 days to properly respond or be forever barred from raising any defenses except payment in full. The deadlines for initiating arbitration are even trickier. An employer must initiate arbitration on the earlier of: (1) 60 days after the date the plan responds to the employer’s request for a review; or (2) 180 days after the employer’s request for review. An unwary employer may miss the arbitration deadline by simply expecting the MEPP to respond to the request for review, which it has no obligation to do.
Even more alarming to some employers is that if certain interim withdrawal liability payments (as calculated by the MEPP) are not timely made, the otherwise applicable 20-year payment schedule can be accelerated and the full amount (as alleged by the Fund) can be enforced in federal district court by the Trustees for the MEPP. This is true even before the merits of the underlying liability have been arbitrated (and assuming no deadlines were missed). This harsh result, sometimes called “pay-now, dispute later,” is an extraordinary remedy that allows the Funds to, at times, avoid due process.
The federal courts have further expanded the reach of these MEPPs. The Ninth Circuit lowered the bar for MEPPs seeking to enforce Withdrawal Liability against successors. Resilient Floor Covering Pension Trust Fund Bd. of Trs. v. Michael’s Floor Covering, Inc., 801 F.3d 1079, 1090-91 (9th Cir. 2015) (citing NLRB v. Jeffries Lithograph Co., 752 F.2d 459, 463 (9th Cir. 1985)). The Seventh Circuit appears even more willing to allow MEPPs to enforce a predecessor’s Withdrawal Liability against successors by focusing on the intent and motives of the asset purchaser. See our article on Indiana Elec. Workers Pension Benefit Fund v. ManWeb Servs., 884 F.3d 770 (7th Cir. 2018).
However, on a seemingly rare occasion, reasonableness and fairness prevail in favor of the employer and against the MEPP. In a recent decision by the Eastern District of Washington, the employer was able to overcome successor allegations by the International Painters and Allied Trades Industry Pension Fund (IUPAT Fund). D9 Contrs., Inc. v. Int’l Painters & Allied Trades Indus. Pension Fund, 2022 U.S. Dist. LEXIS 37072 (E.D. Wash. Mar. 2, 2022). In that case, the IUPAT Fund sought to enforce Withdrawal Liability alleged to be owed by Division 9 Contractors, Inc. (Division 9) against a similarly named employer, D9 Contractors, Inc. (D9). D9 filed the action in federal court, seeking a declaration that it did not owe any Withdrawal Liability to the IUPAT Fund, despite never initiating arbitration and never making an interim payment. Under the applicable legal standard, the court focused on continuity of operations between D9 and Division 9. Both entities shared some employees, and both relied on the same equipment and methods of production. However, in the end, the court held that based on all the applicable factors, the IUPAT Fund failed to connect the dots between Division 9 and D9. The Court also discussed a procedural issue, but in the end the case was decided on the merits and in favor of the employer. Phew!
D9 is like a terrible surprise party that turned out ok in the end. The necessity of the employer’s declaratory action, although ultimately successful, is a chilling reminder that all correspondence from MEPPs should be taken seriously, especially demands for Withdrawal Liability. The failure to strictly adhere to statutory deadlines can be, and often is, catastrophic.
Savvy employers would be well-served by treating Withdrawal Liability like any other potential liability that could threaten the solvency of the company (and all trades and businesses under common control with the withdrawing employer). With the proper counsel, Withdrawal Liability can be managed, and most unwanted surprises avoided. Deal counsel is similarly well-served by seeking our counsel with due diligence and in negotiating asset/stock purchase agreements when either seller or buyer ever contributed to a MEPP. Withdrawal Liability can be a huge scary number but attempting to merely white-knuckle it may deliver your company or your M&A deal a fatal, yet avoidable, blow.