United States: Multiemployer Pension Plans: Section 1405 – Limitation On Withdrawal Liability

Executive Summary: In a recent decision involving a withdrawal liability assessment by a multiemployer pension plan, an arbitrator reduced the assessment by approximately 50 percent and ruled in favor of the employer on several significant legal issues. 

Background

One of the key provisions in multiemployer pension law (MPPAA) is the limitation on withdrawal liability for an employer that goes out of business and withdraws from a pension fund. 29 U.S.C. §1405. That statutory provision, in subsection (a), allows a solvent company to reduce its liability to as low as 30 percent of the liquidation value of the company when a sale of substantially all of the corporate assets triggers the withdrawal. An insolvent employer, whose assets are less that its liabilities, including withdrawal liability, is entitled to a reduction in withdrawal liability by up to 50 percent, under subsection (b). Most often the reduction in withdrawal liability is greater under subsection (a), which is why employers seek to use that subsection, and the plans seek to force the employers into use of subsection (b).

Arbitrator's Decision

In a recent case handled by FordHarrison partner Kevin Williams, the arbitrator agreed that the client company was entitled to a reduction in withdrawal liability under subsection (a) and reduced the withdrawal liability assessment by approximately 50 percent.

The arbitration award and decision is notable for several rulings made by the arbitrator. First, he agreed with FordHarrison's argument that when a pension fund fails to respond to an employer's request for review letter, and thereby does not address the legal issues raised, the fund is not entitled to a presumption of correctness since it failed to make a "determination" on the issue presented. Accordingly, the employer obtains the more favorable "de novo" review in arbitration. Unfortunately, more and more pension plans are ignoring request for review letters that raise meritorious claims, even though the statute states, in Section 1399, that the plan "shall" respond in writing. The funds apparently believe that their inaction will not result in adverse consequences for them. However, there are consequences. The pension funds are stripped of any favorable presumptions and burden of proof granted under the statute.

Second, the arbitrator rejected the fund's argument that to qualify for the "sale of assets" provision under subsection (a), all the assets had to be sold to a "single unrelated party." In this case, the assets were sold at public auction to multiple unrelated parties. There was no single buyer available for the company's assets, and the public auction generated greater fair market value and proceeds for the family-owned business. The fund's position, if adopted, could have severely limited the availability of this important statutory provision that provides a meaningful limitation on withdrawal liability.

Finally, the arbitrator rejected the fund's argument that the "motivation" or reasons for the sale of assets are relevant to the issue of whether the asset sale caused or triggered the withdrawal. A company may decide to close and sell its assets for any number of reasons, such as it is unprofitable, the owners want to retire and cash out, illness or loss of key employees. Those reasons are factors leading to the decision to sell, but they are not relevant to the key legal issue of whether the sale of assets caused the withdrawal from the plan through a permanent cessation of operations.

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.

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