Court Finds Multiemployer Plans Can Impose More Than Withdrawal Liability on Employer

A federal appellate court has rejected claims from an employer withdrawing from a multiemployer pension plan that the plan cannot impose anything more than the withdrawal liability on a withdrawing employer.

 

The rejection relies on sections of the Employee Retirement Income Security Act (ERISA) on which the withdrawing employer based its cause of action. The 11th U.S. Circuit Court of Appeals ultimately determined there is no explicit restriction saying a critical-status multiemployer plan’s board of trustees cannot charge withdrawing employers for their share of the plan’s accumulated funding deficiency.

 

WestRock RKT Company is an employer contributing to the Pace Industry Union-Management Pension Fund, and is challenging an action taken by the fund’s board of trustees. The Fund is in “critical status,” which means it is in dire financial condition. ERISA, as amended by the Pension Protection Act (PPA) requires multiemployer plans in critical status to adopt a rehabilitation plan for the fund, consisting of actions, such as reductions in plan expenditures, reductions in future benefit accruals, and increases in contribution rates, designed to improve the fund’s financial outlook. 

 

The Pace plan’s board adopted a rehabilitation plan in 2010, and two years later amended it to include a provision requiring an employer that withdraws from the fund to pay a portion of the fund’s accumulated funding deficiency.

 

WestRock brought a declaratory judgment action against the fund, seeking a declaration that the amendment violates ERISA, arguing it could bring the cause of action under 29 U.S.C. Sections 1132(a)(10) or 1451(a). The fund argues that the amendment was valid and that those two sections of ERISA do not provide WestRock with a cause of action for declaratory relief. A district court agreed with the fund that ERISA provides no cause of action and granted the fund’s motion to dismiss the complaint. The 11th Circuit affirmed the district court’s decision.

 

In its opinion, the appellate court said it does not need to resolve this dispute over what Section 1132 authorizes because WestRock failed to allege properly that the amendment violates Section 1085 in any manner, procedurally or in substance. 

 

As for a cause of action under 29 U.S.C. Section 1451(a), the court first noted that the section authorizes an employer to bring an action when it “is adversely affected by the act or omission of any party under [Subtitle E] . . . .” Subtitle E has six parts, one of which governs employer withdrawals. The subsection governing employer withdrawals lays out how to calculate “withdrawal liability”—the amount a withdrawing employer is charged for its share of the unfunded vested benefits. However, the appellate court pointed out that unfunded vested benefits are different than an accumulated funding deficiency, which is what the amendment deals with.

 

WestRock claims that, because Subtitle E governs “withdrawal liability,” it governs any and all liability that a plan may impose on a withdrawing employer. Therefore, because the amendment imposes an additional liability on WestRock if it withdraws, Section 1451(a) provides it with a cause of action to challenge the amendment. The Pace plan’s board argues that the amendment was not an act under Subtitle E and there is nothing in ERISA supporting WestRock’s contention otherwise.

 

The 11th Circuit ruled that the text of Section 1451(a) does not support WestRock’s reading. It determined that WestRock is attempting to make an implied preemption argument, and asking the court to recognize that Congress intended to completely occupy the field regarding payments exacted from withdrawing employers by spelling out how to calculate a withdrawing employer’s share of the unfunded vested benefits. WestRock is arguing that no other charges can be levied against a withdrawing employer because Congress specified how to divvy up a withdrawing employer’s share of the unfunded vested benefits.

 

However, the appellate court found there is nothing in the text that indicates Congress intended for “withdrawal liability” to be the only payments a withdrawing employer would ever face, “and because of the comprehensive nature of ERISA, we read the absence of such language as intentional.”