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How Multiemployer Pension Plans Continue To Extract More From Contributing Employers Than What They Bargained For

Contributing employers to multiemployer pension plans (“MEPPs”) are commonly surprised that their obligations to such a plan can extend well beyond the contributions required under a collective bargaining agreement (“CBA”) negotiated with a union.  The most significant extra-contractual obligation is withdrawal liability, a statutory exit fee imposed on employers that leave a plan that has unfunded vested benefits.

However, even before a withdrawal, an employer’s potential liability can also be affected by the plan rules adopted by the MEPP’s trustees and other federal laws intended to encourage proper funding of the MEPPs as shown by the 4th Circuit case of Bakery & Confectionary Union & Indus. Int’l Pension Fund v. Just Born II, Inc., 888 F.3d 696 (4th Cir. 2018).

The Just Born Case

In the Just Born case, the underfunding of the Bakery and Confectionary Union and Industry International Pension Fund (the “Pension Fund”) required it to be classified in critical status under the Pension Protection Act of 2006 (“PPA”).  As required for MEPPs in critical status, the Pension Fund’s Board of Trustees adopted a rehabilitation plan which is generally a revised schedule of reduced benefits for participants and increased contributions by employers intended to return the plan to financial stability.

While Just Born contributed under the rates of the rehabilitation plan for the term of the CBA in effect at the time, the company demanded that the new CBA being negotiated include terms that contributions for newly hired employees be made to a separate 401(k) plan instead of the Pension Fund.  The union refused those terms, and Just Born under the principles of federal labor law declared a good-faith impasse and unilaterally implemented the terms of its last, best offer to the union.  As a result, Just Born stopped contributing to the Pension Fund for newly hired employees.  The Pension Fund disagreed with Just Born’s actions and sued for the alleged delinquent contributions for new employees.

The 4th Circuit ruled in favor of the Pension Fund, affirming the district court’s ruling for Just Born to pay delinquent contributions, and interest, statutory damages, and attorneys’ fees.  The court found that specific language under the PPA, as amended by the Multiemployer Pension Reform Act of 2014, required Just Born to continue contributing under the terms of the expired CBA (which required contribution for all employees) pending the adoption of a new CBA in compliance with the Pension Fund’s rehabilitation plan, a withdrawal from the Pension Fund, or some other statutorily required act.

Jackson Lewis P.C. © 2019

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About this Author

Keith A. Dropkin, Jackson Lewis, welfare benefit plans lawyer, payroll taxes attorney
Principal

Keith Dropkin is a Principal in the White Plains, New York, office of Jackson Lewis P.C.

Mr. Dropkin counsels clients regarding various benefit issues including fiduciary duty obligations, corrections under the DOL and IRS compliance programs, the drafting and design of pension and welfare benefit plans, payroll taxes and those issues arising in mergers and acquisitions. He has represented clients ranging from self-employed individuals to Fortune Top 50 companies. Mr. Dropkin speaks and writes regularly about employee...

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