Multiemployer Plan Member Has No Claim Against Rehabilitation Amendment

A federal appellate court has agreed with a lower court ruling that an employer participating in a multiemployer plan has no cause of action to file suit regarding the multiemployer plan sponsor’s rehabilitation plan amendment.

The 11th U.S. Circuit Court of Appeals notes that under the original U.S. Code Section 1132 of the Employee Retirement Income Security Act (ERISA)—titled “civil enforcement”—there was no cause of action for an employer. However, the Pension Protection Act (PPA) amended that section to create special funding rules for multiemployer plans that were at risk of not being able to meet their distribution commitments. One of those rules was that a plan in “critical status” had to adopt a rehabilitation plan, which forces the plan sponsor, employers, and employees to take action to improve the financial outlook of the fund.

The Board of the Pace Industry Union-Management Pension Fund adopted a rehabilitation plan in 2010. Two years later, the Board amended the fund’s rehabilitation plan to include a provision requiring an employer that withdraws from the fund to pay a portion of the fund’s accumulated funding deficiency.

The new section in the PPA includes a cause of action for employers in certain scenarios related to these special funding rules—that amendment created Section 1132(a)(10), which states that a civil action may be brought by an employer if the plan sponsor fails to update or comply with the terms of the funding improvement or rehabilitation plan in accordance with the requirements of Section 1085, which lays out the rules for plans in critical or endangered status.

WestRock RKT Company claims that the amendment violates Section 1085 because “contribution rate schedules must be provided to the bargaining parties” and “critical status [multiemployer plans] with valid rehabilitation plans may not unilaterally impose on employers contribution requirements necessary to avoid an [accumulated funding deficiency].” The court found that the procedure WestRock cites for contribution rate schedules is inapplicable because it arises out of Section 1085(e)(3)(A)(i), but only Section 1085(e)(3)(A)(ii) is implicated in the case. Further, there is no explicit restriction saying the board cannot charge withdrawing employers for their share of the accumulated funding deficiency.

The court noted that WestRock does not allege that the board failed to meet any of the requirements of Section 1085. And WestRock does not cite to anything else in the statute that suggests an employer has a role to play when the plan sponsor enacts reasonable measures under that section.

In regard to WestRock’s second argument, the court said, WestRock has not cited to any portion of ERISA that explicitly states that a plan sponsor cannot put in place a system for charging withdrawing employers for their share of the accumulated funding deficiency. WestRock argues that the amendment violates Section 1082. “Normally, when a fund is facing an accumulated funding deficiency, employers face an automatic payment to compensate for the deficiency. Section 1082 relieves employers from that payment when a rehabilitation plan is adopted,” the court writes.

However, it found that WestRock reads Section 1082 as broadly prohibiting any sort of charge related to an accumulated funding deficiency for funds in “critical status.” The court said, “We believe that is an incorrect reading of Section 1082. Section 1082 relieves an employer from an automatic payment; it does not go so far as to prohibit a charge based on accumulated funding deficiencies in all scenarios.”

WestRock’s argues that it has a cause of action under 29 U.S.C. Section 1451(a), which 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—“Special Provisions for Multiemployer Plans”—and 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 court said unfunded vested benefits are different than an accumulated funding deficiency, which is what the amendment deals with.

“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,” the court concluded.

The 11th Circuit’s opinion is here.