What an exciting summer for those monitoring multiemployer withdrawal liability developments as part of their summer reading. The news and cases below provide some takeaways for employers contributing to multiemployer pension plans or deciding to enter or leave them.
Hot Off the Presses
To the surprise of many in the multiemployer plan community looking for insight into the reasonableness of the “Segal Blend,” the New York Times Co. (“NYT”) and the Newspaper & Mail Delivers’-Publisher’s Pension Fund (“Pension Fund”) chose to privately resolve their dispute over the amount of withdrawal liability the NYT owes the Pension Fund. The parties filed a Stipulation of Dismissal with the United States Court of Appeals for the Second Circuit Court last week - fourth months after oral arguments. Civ. Case No. 18-1140.
As many know, this closely-watched case centered around the withdrawal liability interest or “discount” rate the Pension Fund used to calculate an employer’s withdrawal liability. The Pension Fund uses the “Segal Blend” rate – a commonly implemented proprietary method of valuing unfunded vested benefits to calculate withdrawal liability by blending the plan’s investment-return interest rate assumption with the lower rates published by the Pension Benefit Guaranty Corporation (PBGC). The NYT accused the Pension Fund of inflating its liability by millions of dollars using the Segal Blend rate, a different, less favorable, interest rate than the rates the Fund used for other plan purposes, i.e. funding and investment return. The Trustees argued their select rate was reasonable and not in error, and there was no ERISA requirement to use the same interest rate for all pension plan calculations. The United States District Court for the Southern District of New York sided with the NYT and found the Segal Blend unreasonable and not the “actuary’s best estimate of anticipated experience for the plan,” and the Pension Fund appealed the decision. Unfortunately, the pension world must wait for clarification on the reasonableness of a pension plan’s use of a different withdrawal liability discount rate and the Segal Blend.
Look Before You Exit
In Board of Trustees, Sheet Metal Workers’ National Pension Fund v. Four-C-Aire, Inc., No. 17-2295, 2019 WL 2837706 (4th Cir. Jul. 3, 2019), the United States Court of Appeals for the Fourth Circuit held that a withdrawing employer’s obligation to pay an “exit contribution” (i.e. exit fee) to the Sheet Metal Workers’ National Pension Fund (the “Pension Fund”) survived the expiration of the applicable collective bargaining agreement (the “CBA”). The circuit court reversed the district court’s order granting Four-C-Aire, Inc.’s (the “Employer”) motion to dismiss, vacated the judgment as to the exit fee claim, and remanded the case.
The Employer, a New York-based corporation, employed members of the Sheet Metal Workers International Association Local Union No. 58. The Employer agreed to an existing trade association CBA that incorporated Pension Fund governing documents. Specifically, the Employer became a signatory to a CBA that was to remain in effect, per a durational clause in the CBA, until April 30, 2016. Not unusual in multiemployer plan situations, the CBA required the Employer to contribute to the Pension Fund and “incorporated by reference” that Fund’s Trust Documents and bound the Employer to the terms of those Trust Documents, “including any amendments thereto and policies and procedures adopted by the Fund’s Board of Trustees.” The Trust Documents required signatory employers to pay an exit fee to the Pension Fund when three criteria were met: (1) it ceased to have an obligation to contribute to the Pension Fund, and (2) as a result of the cessation of its obligation to contribute, it had an event of withdrawal under Title IV of ERISA, but (3) did not have to pay withdrawal liability. While the CBA was in effect, the Trustees amended the Trust Documents: “[B]y agreeing to contribute, continuing to contribute, or continuing to be obligated to contribute, to the Fund, each Employer agrees to pay an Exit Contribution in accordance with this [provision]. The Employer’s obligation to pay an Exit Contribution under this [provision] is independent of the Employer’s [CBA] and continues to apply after the termination of the [CBA](notwithstanding any language to the contrary in the [CBA])” (the “Amendment”). Meaning, in situations where an employer did not owe withdrawal liability, the Trust Documents allowed the Pension Fund to assess an exit fee on the employer – to make the Pension Fund whole.
The Employer’s contributions ended when the CBA expired on April 30, 2016, and the Employer did not execute another CBA until after the expiration date. In August 2016, the Pension Fund notified the Employer it triggered a complete withdrawal on May 1, 2016 under Section 4203(b) of ERISA (the Building and Construction Industry rules) – the Employer’s CBA expired and its contribution obligation to the Pension Fund ceased yet it continued operating in the CBA’s jurisdiction. However, the Employer did not owe any withdrawal liability under ERISA’s de minimis rules. The Pension Fund demanded the Employer pay an exit fee of $97,601.01 under the Trust Documents. The Employer refused, and the Pension Fund filed a collections action in the United States District Court for the Eastern District of Virginia (where the Pension Fund is located).
In district court, the Employer moved to dismiss the Pension Fund’s claim arguing its obligations under the CBA, including any duty to pay an exit fee, ceased when the CBA expired. The district court granted Four-C-Aire’s motion to dismiss based on three independent grounds: (1) the Employer’s duty to pay an exit contribution did not survive the CBA’s expiration because the CBA did not specifically state that obligation survived; (2) the Pension Fund’s complaint’s allegations were insufficient to demonstrate the Amendment had been properly incorporated into the Trust Document; and (3) the CBA’s grant of “unilateral” modification power to the Pension Fund was illusory and unenforceable under contract law principles.
Changing course, the Fourth Circuit reversed and remanded the case finding that the Employer signed the CBA and by doing so it agreed to be bound by the CBA, the Trust Documents specifically included in the CBA by reference, and any amendments to the Trust Documents (irrespective of whether the Employer had notice). The court also reasoned a CBA can explicitly provide that certain obligations contained within it may extend beyond the CBA’s expiration, which is exactly what occurred in this case - the Trust Documents expressly incorporated into the CBA unambiguously provided that an employer’s exit fee obligation survived the CBA’s expiration. The Pension Fund had adequately plead its case pursuant to the ordinary contract principles of incorporation.
CBDM Takeaway: Multiemployer pension plans are extremely aggressive in imposing and collecting withdrawal liability today, and the federal courts are ruling in their favor. As shown here, the collection of an “exit fee” is no different. Employers participating in multiemployer plans should carefully review their CBAs, participation agreements, and the plan documents and rules before negotiating, or renewing a CBA or withdrawing from a pension plan, to determine whether the plan may impose liabilities or utilize certain rights of which the employer may not otherwise be aware. Employers considering participating in multiemployer plans should do the same if possible.
Partial Withdrawal Winner
Caesars Entertainment Corp. (“Caesars”) rolled the dice and successfully challenged a pension fund’s partial withdrawal liability assessment arguing that the “bargaining-out” test of Section 4205(b)(2)(A)(i) of ERISA did not apply. Caesar’s Enter. Corp. v. Int’l Union of Operating Engineers Local 68 Pension Fund, No. 18-2465, 209 WL 3484247 (3rd Cir. Aug. 1, 2019).
Caesar’s operated four casinos in Atlantic City, New Jersey, and each casino was a party to a collective bargaining agreement (“CBA”) requiring contributions to the International Union of Operating Engineers Local 68 Pension Fund (the “Pension Fund”) for its covered workers. There was no dispute that these four casino facilities were in the same ERISA and Internal Revenue Code “controlled group.” Caesar’s shut one of the four casinos down in 2014 and stopped making contributions to the Pension Fund for the engineering work performed at that casino; it continued contributing on behalf of the other three casinos.
In response, the Pension Fund assessed Caesar’s with a partial withdrawal pursuant to Section 4205(b)(2)(A)(i), the “bargaining-out” partial withdrawal test arguing the employer ceased contributing to the Fund under one or more but not all its CBAs and continued to perform the same type of work requiring contributions in the CBA jurisdiction. Caesars disagreed. The arbitrator issued an award for the Pension Fund, the United States District Court for the District of New Jersey reversed the arbitrator, and the Pension Fund appealed to the United States Court of Appeals for the Third Circuit.
To the joy of Caesar’s, the Third Circuit not only agreed with the district court but also agreed with all the other circuits that have opined on this issue and the Pension Benefit Guaranty Corporation in finding no partial withdrawal occurred. Relying on Congressional intent and statutory interpretation, the Third Circuit reasoned that for ERISA’s “bargaining-out” partial withdrawal liability test to apply to a withdrawal, the specific “work” contemplated in the test “means work…of the type for which contributions are no longer required.” Meaning it “excludes work of the type for which contributions are still required.” The court likened the situation to one where an employer closes one facility and shifts the work to other facilities, which are covered by other CBAs requiring contributions to a pension plan.
CBDM Takeaway: This holding and the other circuits’ opinions provide a clear understanding of the “bargaining-out” partial withdrawal liability rule for employers considering certain restructuring or strategies and looking to avoid incurring withdrawal liability. It also further exemplifies the state of pension funds’ commitment in pursuing outstanding withdrawal liability.
Can’t Stop the Acceleration
In August 2019, the United States Court of Appeals for the Seventh Circuit held that once a multiemployer pension plan accelerates an employer’s periodic and scheduled withdrawal liability payments into a lump sum, that decision cannot be undone. In Bauwens v. RevconTech. Grp., Inc., No. 18-3306, 2019 WL 3797983 (7th Cir. Aug. 13, 2019), the Seventh Circuit affirmed the district court’s holding and sided with the employer finding that the pension fund’s lawsuit against the employer was time-barred because it was filed more than six years after the Fund accelerated the employer’s withdrawal liability payments under Section 4219(c)(5) of ERISA. Here, the court rejected the pension fund’s argument the withdrawal liability had been decelerated each time the employer paid a delinquency.
This case concerned the pension fund’s pursuit of collecting an employer’s withdrawal liability triggered by a 2004 withdrawal. In 2008, the employer defaulted on its quarterly payments and failed to cure the default in time (after receiving proper statutory notice); therefore, the pension fund accelerated the payments into a lump sum under ERISA and filed suit to recover the full amount owed. Subsequently, the pension fund voluntarily dismissed the suit after the employer agreed to cure its default and make quarterly payments. History repeated itself in 2009 and subsequent years as the employer missed more payments. After the employer missed another payment in 2018, the pension fund sued for the lump sum. The employer moved to dismiss the complaint arguing the six-year statute of limitations accrued upon the pension fund’s 2008 acceleration of the payments and expired in 2014. The pension fund counter-argued that every time it voluntary dismissed the collection action it revoked the acceleration and started a new limitations period.
On appeal, the Seventh Circuit agreed with the district court that once the pension fund accelerated the employer’s delinquent liability payments into a lump sum payment under Section 4219(c)(5) of ERISA in 2008 that acceleration cannot be undone; therefore, the pension fund’s 2018 collection lawsuit was time barred by its 2008 actions. Because Congress did not authorize a deceleration provision in ERISA and left the statute silent, the court was unwilling to superimpose its opinion.
CBDM Takeaway: As always, employers that have withdrawn from pension plans or are about to withdrawal should monitor their payment schedules to avoid inadvertent payment accelerations. And, we are again reminded that courts often prefer to strictly construe statutes and defer to statutory intent, and ERISA is no exception.
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Please contact David Ofenloch if you would like any further information on this topic or any other employee benefit issues.