United States: Multiemployer Plan Withdrawal Liability Can Be Trap For The Unwary

Last Updated: May 28 2013
Article by James P. McElligott, Jr and Robert B. Wynne

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 of “trades 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 each “trade or business” under common control with an employer contributing to a multiemployer plan is jointly and severally liable, along with that employer, for the employer’s withdrawal liability. See, e.g., IUE AFL-CIO Pension Fund v. Barker & Williamson, Inc., 788 F.2d 118 (3d Cir. 1986). This is the case even though the various trades and businesses may have nothing in common except ownership.

Examples of controlled groups are (i) Companies A and B, where B is a wholly owned subsidiary of A; and (ii) Companies C, D and E, where the same four individuals each own 25 percent of the stock of each company.

As long as the corporate form is observed, a shareholder of a corporate employer is not personally liable for withdrawal liability unless the shareholder owns an unincorporated trade or business under common control with the withdrawing employer. This was the case in Nagy.

Fund Pursues Shareholder Because of His Leasing and Consulting Sole Proprietorships

Charles F. Nagy owned and operated several businesses. One of them, Nagy Ready Mix, Inc. (Ready Mix), had a collective bargaining agreement with the Teamsters and contributed to the Central States Pension Fund (Fund).

In 2007, Ready Mix stopped using Teamsters labor and ended its participation in the Fund. This action constituted a complete withdrawal from the Fund, resulting in the Fund’s assessing Ready Mix withdrawal liability of approximately $3.6 million. Ready Mix challenged this assessment by initiating arbitration. When Ready Mix failed to make withdrawal liability payments while the arbitration was pending, the Fund brought suit, claiming that Nagy’s other businesses, as well as Nagy himself, were jointly and severally liable for the withdrawal liability.

The parties agreed that Nagy’s other businesses were under common control with Ready Mix and therefore jointly and severally liable for the assessment. They disagreed, however, over whether Nagy himself was personally liable.

The Fund argued that certain leasing and management services activities, which Nagy performed as a sole proprietorship, qualified as trades or businesses and triggered personal liability. Common control clearly existed, and so the disputed issue was whether Nagy’s unincorporated leasing and management services constituted “trades or businesses” under ERISA’s controlled-group rules.

Nagy’s Leasing Activity was a Trade or Business

In 1972, Ready Mix purchased property to serve as its base of operations. In 1986, the property was conveyed to Nagy, who then leased the property back to Ready Mix pursuant to a triple-net lease that made Ready Mix responsible for utilities, insurance and tax payments, in addition to maintenance and repair. Though Nagy owned the property individually, it remained the primary facility for Ready Mix.

The district court held that Nagy’s leasing activity was a passive investment and not a trade or business. The court of appeals disagreed, holding that a bright-line “categorical” rule applies when a property owner in common control with a withdrawing employer leases property to that employer: the leasing activity is categorically a trade or business within the meaning of Section 4001(b)(1).

The court justified its categorical rule because it is unlikely that leasing to a commonly-controlled withdrawing employer would ever be a truly passive investment. It is more likely that the goal is to split up the withdrawing employer’s assets. Categorically labeling this activity a trade or business prevents businesses from shirking ERISA obligations by fractionalizing operations into separate entities.

It is likely that Nagy structured his business and real estate holdings to gain the tax advantages arising from personal ownership of the real estate. Unfortunately, the personal ownership of real estate led to his personal liability in his capacity as a controlled-group member.

Nagy’s Management Services Activity Was Also a Trade or Business

From the early 1990s through 2005, Nagy managed the operations of a country club, of which Nagy was a director, shareholder and president. In 2005, when the club’s board of directors decided to sell the club’s golf course, Nagy took the lead in preparing the sale. After the sale, he continued to manage the club’s remaining assets, working from his home. Nagy was paid for these services as an independent contractor, without payroll deductions, as reflected on Forms 1099-MISC for tax years 2005, 2006, 2007 and 2008. Nagy reported this income, which exceeded $200,000 in total, on Schedule C of his federal income tax returns.

The Seventh Circuit affirmed the district court’s decision that Nagy provided management services to the club as an independent contractor. In rejecting Nagy’s argument that he was an employee of the club, the court relied primarily on the method and form by which Nagy was paid. Instead of receiving a salary through a payroll system, Nagy was paid on an hourly basis with no withholdings or fringe benefits, and was only given Forms 1099-MISC to document the compensation. The court noted that in previous cases, Form 1099 tax treatment weighs heavily in favor of independent-contractor status.

Accordingly, Nagy’s management services activity was also found to be a trade or business under common control with Ready Mix, and was a second reason for his personal liability for Ready Mix’s withdrawal liability.

Controlled-Group Liability Also Applies to Single-Employer Unfunded Benefit Liabilities

Similar liability issues can arise where a single-employer pension plan is terminated in a distress or involuntary termination because each member of the sponsoring employer’s controlled group is jointly and severally liable to the Pension Benefit Guaranty Corporation (PBGC) for the plan’s unfunded benefit liabilities.

The PBGC has also been expansive in seeking to impose unfunded benefit liability on unsuspecting putative controlled-group members. In 2007, for example, the PBGC Appeals Board ruled that a private equity fund was a trade or business liable for unfunded benefit liabilities of an employer allegedly under “common control” with the private equity fund.

Continuing Litigation as to Whether Private Equity Funds Have Controlled-Group Liability

Multiemployer plans have cited the 2007 PBGC Appeals Board decision in litigation seeking withdrawal liability against private equity funds as alleged controlled-group members. The district court in Board of Trustees v. Palladium Partners, 722 F.Supp. 2d 854 (E.D. Mich. 2010) accepted this argument. More recently, the district court in Sun Capital Partners v. New England Teamsters Fund, No. 10-10921-DPW (D. Mass. Oct. 18, 2012), appeal pending 12-2312 (1st Cir.), rejected and strongly criticized the PBGC decision.

The Sun Capital case will be argued on appeal June 5, 2013, before the First Circuit Court of Appeals. The PBGC has filed an amicus brief supporting the multiemployer plan and seeking reversal of the district court decision.


In light of the substantial unfunded benefit liabilities of many multiemployer plans and single-employer plans, employers, investors and even lenders should all be alert to the dangers of liability arising from membership in a controlled group.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.