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Lump Sum Payment of Withdrawal Liability


Brian Haynes

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My client received a notice and demand for withdrawal liability. The notice states that the employer can either pay off the assessment in a lump sum payment (made within 10 days of receipt of the Fund's notice) or commence making interim payments in January of 2015. My client wants to negotiate a lump sum payment. My concern is that if a lump sum is not paid within the 10 day period specified by the Fund, is the employer harmed by having to negotiate a lump sum payment with some interest accruing? My thinking is that interest does not start accruing until the first interim payment is due in January of 2015 so that the employer should have until that time to negotiate and pay a discounted lump sum amount. I understand that Section 4219©(4) allows an employer to pay off the liability without penalty, but with accrued interest, if any. Any thoughts on why the Fund states that the lump sum must be paid in 10 days? Thanks.

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I'm not an attorney but if you're paying the full dollar amount of the liability determined under § 4211, I don't see how the plan could reject it if you pay within 60 days of receiving the demand letter. As a practical matter, most plans will negotiate some sort of discount if you pay in a lump sum and such negotiations typically take months to complete.

I've seen plans put in ridiculous deadlines like the 10-day one you cite. I don't think there's any legal basis for that deadline, however.

In any event, if there's any potential risk of a mass withdrawal, you really don't want to pay in a lump sum without having a settlement agreement that covers what happens if you later get included in a mass withdrawal. Otherwise you can end up in the position where you essentially lose the value of the lump sum you paid.

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Also look to see if the payment schedule extends more than 20 years. If so, see if the lump sum is the actual withdrawal liability, or the present value of the 20 years of payments. Often, if the 20-year rule kicks in, the funds try to get the entire withdrawal liability as a lump sum even though they can only collect the payments for 20 years.

However, as Jim pointed out, if you think a mass withdrawal is approaching, you should do what you can to distance yourself from it.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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