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Multiemployer plans


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Unpaid Employer Contributions as Plan Assets: Expansion Of Liability Under ERISA
"In a distinct trend, federal courts have found that, depending on the text of the underlying plan documents, unpaid employer contributions due under a CBA may be viewed as plan assets, such that the representatives of an employer who exercise fiduciary control over those plan assets can be held individually liable for the unpaid amounts (together with interest and penalties) under ERISA. These cases will no doubt help plan trustees and administrators collect monies owed to the plan. They also should serve as cautionary warnings to contributing employers to ensure that they fully understand the obligations that they are undertaking when they agree to contribute to ERISA funds pursuant to CBAs." (Proskauer Rose LLP)
[Opinion] Jobs, Income Inequality and Taft-Hartley Benefit Plans (PDF)
"Necessary policy and regulatory changes include permitting the plans to participate directly in the health-care exchanges, allowing low-wage plan participants access to ACA subsidies and giving the retirement plans greater flexibility to adjust benefits and contribution rates.... Federal policy is chiefly focused on compliance issues for the plans, with little effort to encourage their growth in spite of their proven ability to train and maintain workforces. A better approach would be for the federal government to provide the financial resources necessary to address the plans' challenges, both through tax benefits to health-care plans and regulatory relief to pension plans." (Kraw Law Group, via Bloomberg Pension & Benefits Daily)
Key Findings from the Survey of Calendar-Year Multiemployer Plans' 2014 Zone Status Under PPA '06
"The percentage of calendar-year plans in the green zone is 65 percent, up from 61 percent in 2013. The percentage of plans in the yellow zone is 8 percent, down from 11 percent one year earlier. The percentage of plans in the red zone is 27 percent, which is similar to last year's percentage (28 percent). The average Pension Protection Act of 2006 funded percentage as of January 1, 2014 is 88 percent, which is an increase from 85 percent in 2013." [Results are summarized in a one-page infographic.] (Segal)
Once Thought Secure, Multiemployer Pensions Teeter and Fall
"The pensions of millions of Americans are being threatened because of trouble in a part of the retirement world long considered so safe that no one gave it a second thought.... Multiemployer pensions are not only backed by federal insurance, but they also were thought to be even more secure than single-company pensions because when one company in a multiemployer pool failed, the others were required to pick up its 'orphaned' retirees." (The New York Times; subscription may be required)
[Guidance Overview] Multiemployer Pension Plans May Need Amendments to Comply with IRS Guidance on Same-Sex Marriage Provisions
"The Notice requires that amendments be adopted by a multiemployer pension plan as follows: [1] If the plan's terms with respect to the requirements of section 401(a) define a marital relationship by reference to section 3 of DOMA or are otherwise inconsistent with the outcome of Windsor or the guidance in Rev. Rul. 2013-17 or the Notice, then an amendment to the plan that reflects such outcome or guidance must be adopted. [2] An amendment is required if a plan sponsor chooses to apply the rules with respect to married participants in a manner that reflects the outcome of Windsor for a period before June 26, 2013. The amendment must specify the date as of which, and the purposes for which, the rules are applied in this manner.... For a multiemployer pension plan, an amendment required in [1] is not subject to the requirements of section 432 of the Code ... while an amendment required in [2] is subject to those requirements." (Cary Kane ERISA Lawyer Blog)
[Guidance Overview] PBGC Proposed Regs Encourage Rollovers from DC Plans to DB Plans
"The PBGC wants to increase the retirement plan options available to employees who are participating in defined contribution plans. The proposed regulations promote this goal by providing guarantees to defined contribution plan participants who roll over their plan benefits to a pension plan that is later terminated by the PBGC." (Practical Law Company)
Multiemployer Pension Protection Version 2.0: More Robust Legislation Needed to Address Plans' Funding Challenges
"Failure to extend the PPA would have 'detrimental effects' on both multiemployer plans that are operating under recovery programs, and those that might eventually need to do so, the [American Academy of Actuaries' Pension Practice Council] says.... It cites several challenges driving the need for a more robust successor multiemployer plan funding regime, including: [1] The exhaustion of funds that faces the most severely underfunded plans.... [2] Financial jeopardy for the PBGC's multiemployer insurance program itself, caused by the looming insolvency of many multiemployer plans and PBGC's current deficit." (American Academy of Actuaries)
[Opinion] Text of Comments by U.S. Chamber of Commerce to PBGC on Multiemployer Plans; Proposed Valuation and Notice Requirements (PDF)
"This proposed rule acknowledges this reality and eliminates notice requirements where the administrative burdens and costs outweigh the usefulness of the information provided. As such, we appreciate the PBGC's review of these notice requirements and recognition that certain requirements are not furthering the goals of the PBGC or protecting the interests of participants." (U.S. Chamber of Commerce)
Another Way to Become Personally Liable to a Multiemployer Plan
"[A federal district] court concluded that the founders and sole officers of a cleaning company violated their fiduciary duties under ERISA by failing to remit contributions to a multiemployer plan. The plan's collection policy specifically provided that 'all money owed to the trust, which money (whether paid, unpaid, segregated or otherwise traceable, or not) becomes a trust asset on the due date.' Because of that statement, the court determined that the contributions became trust assets from the date they were owed and that the officers of the company who chose to pay other company obligations were personally liable for the delinquent contributions. That liability attached even though the business was operated in corporate form." [Trustees of the Construction Industry and Laborers' Health & Welfare Trust v. Archie, No. 2:12-CV-225 (D. Nev. Mar. 3, 2014)] (Stinson Leonard Street)
GASB Declines to Delay Implementation Date of Pension Standards
"The Governmental Accounting Standards Board [has] voted unanimously not to delay the implementation date of GASB Statement No. 68, Accounting and Financial Reporting for Pensions. The requirements of Statement 68 are effective for periods beginning after June 15, 2014. The request to the Board for an indefinite delay in implementation date came from stakeholder groups that asserted that such a delay is necessary until related auditing procedures have been implemented for a sufficient period. The concern was expressed that governments in multiple-employer pension plans will receive a modified audit opinion on their financial statements in the interim." (Governmental Accounting Standards Board)
2013 PPA 'Zone' Status of Calendar-Year Multiemployer Plans
"In 2013, a solid majority of plans -- 59 percent -- were in the green zone. This percentage represents a very slight decline from 2012 (60 percent). The percentage of plans in the yellow zone was the same for 2013 as for 2012: 14 percent. Between 2012 and 2013, the percentage of plans in the red zone increased by 1 percentage point, from 26 percent to 27 percent. The average PPA '06 funded percentage for all surveyed plans was 84 percent in 2013, the same percentage as in 2012." (Segal)
[Guidance Overview] Final Regs Implementing ACA 90-Day Waiting Period Limit Include Multiemployer Example
"The example refers to a multiemployer plan that aggregates hours in a calendar quarter. If enough hours are earned in that quarter, the plan provides coverage on the first day of the next calendar quarter. The final rule notes that such a plan has an eligibility provision that is designed to accommodate a unique operating structure and, therefore, is not considered to be designed to avoid compliance with the 90-day waiting period limitation." (Segal)
Funding Status Does Not Preclude Withdrawal from Multiemployer Plan
"Under [PPA '06], if a pension fund is in critical status, the trustees have to adopt a rehabilitation plan. The rehabilitation plan usually increases contributions and adjusts benefits so that the plan will eventually reduce its underfunding. To some extent, the rehabilitation plan assumes that the number of contributing employers will remain constant. So a withdrawing employer can cause some frustration but being in critical status with a rehabilitation plan does not lock an employer into the plan." (Fox Rothschild LLP)
ERISA Successorship Test Meant 'Interest' Was Transferred Between Predecessor and Successor Companies
"The appellate court concluded that the facts adopted by the district court, including that the successors retained most of the predecessor's employees, that all entities operated out of the same location, and that there was substantial overlap in customer lists, among other facts, created a clear picture of notice and continuity, satisfying the ERISA test. Thus, the successor companies could be substituted as judgment debtors in a lawsuit to recover delinquent pension fund contributions." [Sullivan v. Running Waters Irrigation, Inc., No. 13-1308 (7th Cir. Jan. 9, 2014)] (Wolters Kluwer Law & Business)
[Opinion] Multiemployer Pension Plans at Risk Unless Congress Acts
"In addition to the recommendations from the [National Coordinating Committee for Multiemployer Plans], the Chamber believes that additional reforms are needed to address employer concerns. For example, we recommend that limitations be placed on the amount of withdrawal liability that an employer can assume....[M]any of our members [have received] estimates of withdrawal liability that exceed the net worth of the company. Clearly, this is an outcome that was never contemplated when withdrawal liability was implemented and should be rectified." (U.S. Chamber of Commerce)
Reporting and Disclosure Guide for Multiemployer Plans, February 2014 (PDF)
57 pages, in the form of useful charts. Sections include: [1] All ERISA plans; [2] Defined benefit and defined contribution plans; [3] Defined benefit plans only; [4] Defined contribution plans only; and [5] Group health plans. (Buck Consultants)
[Guidance Overview] Pay-or-Play Relief for Multiemployer Plans (and the Employers That Love Them)
"Absent this guidance, there was concern that employers would question their participation in multiemployer plans because they had no control over whether their full-time employees were actually offered coverage by the multiemployer plan. However, the interim guidance now provides that an employer is treated as offering coverage for all employees for whom it is required to contribute to the multiemployer plan, even those full-time employees who never satisfy that plan's eligibility rules and therefore are never offered coverage." (Proskauer's ERISA Practice Center)
[Guidance Overview] For Some Plans, Sun Is Setting on PPA 2006 Multiemployer Funding Rules
"The sunset contains a continuation clause to keep the expiring provisions in place for plans that are in the yellow or red zone and are operating under an FIP or RP in the 2014 plan year.... If the sunset occurs, the impact on plans that were in the green zone in their 2014 plan year is relatively clear: these plans will continue to operate under the funding rules for financially healthy plans put into place by PPA '06. They will not revert to the pre-PPA '06 funding rules, nor will the PPA '06 single-employer plan rules apply to them.... The impact of the sunset on plans that are subject to the continuation clause is less clear." (Segal)
[Guidance Overview] PBGC Proposed Reg Would Reduce Administrative Burden on Multiemployer Plans (PDF)
"PBGC proposed to allow valuations every three years, instead of annually, for plans that are terminated by mass withdrawal but are not insolvent, where the actuarial value of the plan's nonforfeitable benefits is $25 million or less ... If a plan that is eligible to perform valuations only once every three years finds in its next valuation that the value of its nonforfeitable benefits exceed s $25 million, that plan will go back to performing valuations annually unless or until the value of its nonforfeitable benefits declines again to $25 million or less." (Buck Consultants)
PBGC Eliminates Early Flat-Rate Premium Payment Requirement for Large Plans, Including Multiemployer Plans
"[T]he final rule makes October 15 the sole filing date for flat-rate premiums for large calendar-year plans. Plans are no longer required to make estimated premium payments or filings. The change affects single employer plans, as well as multiemployer plans." (Segal)
PBGC Reviving Partition Authority Despite Limited Resources
"The agency has the authority to take responsibility for those companies that have gone out of business, called partition ability, but until now has only used this authority twice -- not because the agency does not want to help, but because its multiemployer program does not have adequate funds to do so.... However, according to [PBGC Director Joshua] Gotbaum, the agency has decided, even though it is clear it needs more resources, it will use its authority to help these plans." (PLANSPONSOR.com)
PBGC Uses 'Partition' Authority to Protect Pensions of Hostess Bakery Former Employees
"Using its partition authority for only the third time ever, the Pension Benefit Guaranty Corporation will pay retirement benefits for nearly 350 former Hostess Brands employees who were members of the Bakery and Sales Drivers Local 33 Industry Pension Fund, a distressed multiemployer plan in Baltimore. The Bakery and Sales Drivers couldn't afford retirement benefits for former Hostess employees and asked PBGC to pay for them. Separating Hostess participants from the rest of the plan will enable the plan to avoid insolvency and preserve pension benefits for most of the plan's 700 participants." (Pension Benefit Guaranty Corporation [PBGC])
2014 Planning for ERISA Multiemployer Defined Benefit Plan Operations (PDF)
"The calendar provided in this [article] will help you set up your own schedule of activities to address as the year progresses so that you do not miss important deadlines.... Is plan administration in order? ... Are your documents in good shape ... Are you ready for actuarial and financial disclosure ... Have you communicated with your actuary? ... Are you using alternative investments?" (Buck Consultants)
HHS Doing 'Regulatory Gymnastics' to Create Exemption for Certain Self-Insured Plans, Group Says
"The 'regulatory gymnastics' that the [HHS] is doing to exempt union multi-employer plans from the [ACA] reinsurance fee raises serious questions and increases the cost for other employers, according to HR Policy Association comments submitted to HHS." (Wolters Kluwer Law & Business)
[Official Guidance] Text of Proposed PBGC Regs Relaxing Reporting of Mergers by Multiemployer Plans, Reducing Valuation Frequency for Certain Smaller Multiemployer Plans
"PBGC is proposing to amend its multiemployer regulations to make the provision of information to PBGC and plan participants more efficient and effective and to reduce burden on plans and sponsors. The amendments would reduce the number of actuarial valuations required for certain small terminated but not insolvent plans, shorten the advance notice filing requirements for mergers in situations that do not involve a compliance determination, and remove certain insolvency notice and update requirements. The amendments are a result of PBGC's regulatory review[.]" (Pension Benefit Guaranty Corporation)
2014 Key Administrative Dates and Deadlines for Calendar Year Multiemployer Defined Benefit Plans (PDF)
Includes a calendar with details for each item. (Milliman)
Multiemployer Pension Funding Legislation Possible in 2014 (PDF)
"The combination of the PPA sunset at the end of this year and the financial outlook for the PBGC's multiemployer insurance program may push Congress to consider multiemployer pension plan legislation in 2014. Although comprehensive legislation has not yet been introduced in the 113th Congress on the funding of multiemployer plans, it is possible that legislation may be introduced in 2014 and that the NCCMP proposal may be the basis for such legislation. Aspects of the NCCMP proposal, however, are controversial[.]" (Buck Consultants)
[Opinion] Lawmakers Should Let the Sun Set on the Pension Protection Act (PDF)
"The solution to the financial problems of multiemployer plans ... is not found in laws that hamstring governance, discourage innovation and stifle self-sufficiency. Instead, the federal government should remove barriers that prevent troubled multiemployer plans from fixing themselves by restructuring their benefits and attracting new employee and employer participation." (George M. Kraw and Katherine McDonough via The National Law Journal)
Multiemployer Plan Reporting: Financial Statement Disclosures
"[These] disclosures ... are required for nonpublic entities for fiscal years ending after December 15, 2012, and disclosures should be made for all prior periods presented. Construction contractors that are signatories to a collective bargaining agreement that includes contributions to a multiemployer pension plan must work with their accountants and the plan's actuary to obtain the necessary information to comply with the Financial Accounting Standards Board disclosure requirements." (Belfint Lyons & Shuman, CPAs)
House Committee Examines Multiemployer Pensions
"In response to several proposals to consider increasing premiums, decreasing benefits, or engaging in a mix of both, witnesses urged the committee to be cautious. This was because doing either might have adverse effects on the desired benefit levels. Increasing premiums may discourage potential employers from joining plans, while reducing benefits might encourage workers to leave them." (Financial Executives International)
Taft-Hartley Plans May Get Exemption from Reinsurance Fee
"Buried in [recently-issued HHS rules] is the disclosure that the administration will propose exempting 'certain self-insured, self-administered plans' from the law's temporary reinsurance fee in 2015 and 2016 [at page 65051 in the October 30, 2013 Federal Register]. That's a description that applies to many Taft-Hartley union plans acting as their own insurance company and claims processor ... Eliminating the reinsurance fee was one of several resolutions adopted at the AFL-CIO's September convention, along with giving union plans access to ACA tax credits for lower-income members." (Kaiser Health News)
Improvements Needed for Multiemployer Pension System
"While attendees of a U.S. House subcommittee hearing agreed that the U.S. multiemployer pension system needs to be improved, they had differing opinions on how to achieve this.... [Subcommittee chair David P. Roe] cautioned that inaction could have a chilling effect on the current problems.... While he acknowledged that a number of multiemployer plans are recovering, Roe reminded hearing attendees, 'We cannot lose sight of the sizeable number of large plans that remain in financial trouble.'" (PLANADVISER.com)
[Opinion] Statement of Pension Rights Center to Joint Congressional Hearing on Multiemployer Pension Plan Issues (PDF)
"[T]he rationale underlying the NCCMP proposal for deeply-troubled plans is that cutting some retiree benefits now will prevent the necessity of larger reductions later should the plan fail. This is not, however, necessarily true for all retirees.... [Further,] multiemployer plan guarantees are already much lower than guarantees for single-employer plans, which generally will not reduce normal retirement benefits if they are below the maximum guarantee level, currently $57,477 for a single-life benefit. In contrast, the maximum guarantee for a retiree with 30 years of service in a multiemployer plan is only $12,870[.]" (Pension Rights Center)
House Committee Addresses Multiemployer Pension Plan Problems
"Factors such as multiple investment downturns, an aging workforce, and fewer contributing employers have threatened the long-term sustainability of the multi-employer plan system. Moreover, multi-employer plans are becoming increasingly reliant on the [PBGC] ... for financial assistance.... Subcommittee Chairman Phil Roe (R-TN) concluded the hearing by pointing out that many provisions of the Pension Protection Act (PPA) sunset at the end of 2014, furthering the need for legislative action." (Littler)
Text of District Court Opinion Refusing to Recognize Federal Common Law Negligence Claim Against Multiemployer Pension Plan Trustees (PDF)
"According to DGA, granting the Trustees complete immunity with respect to their alleged tortious mismanagement of the Pension Plan's assets cannot be the result Congress intended when it adopted the Multiemployer Pension Plan and Amendment Act of 1980 (MPAA), and, therefore, there is an 'awkward gap in the statutory scheme.' ... The Court disagrees. The Sixth Circuit has not recognized a federal common law cause of action by employers against trustees for negligence, and this Court declines to create one." [Digeronimo Aggregates, LLC (DGA) v. Zemla et al, No. 1:13-CV-1208 (N.D. Ohio Oct. 25, 2013)] (United States District Court for the Northern District of Ohio)
House Subcommittee to Discuss Proposed Multiemployer Pension Reforms
"On Tuesday, October 29 at 10:00 a.m., the Subcommittee on Health, Employment, Labor, and Pensions, chaired by Rep. Phil Roe (R-TN), will hold a hearing entitled, 'Strengthening the Multiemployer Pension System: How Will Proposed Reforms Affect Employers, Workers, and Retirees?' The latest in a series of hearings on multiemployer pension reform, [live webcast and witness list will be available here.]" (Subcommittee on Health, Employment, Labor, and Pensions, U.S. House of Representatives)
Stealth Bill Would Allow Cuts to Current Pensions
"The law says pension plans can't cut the pensions of those already retired. But some multi-employer plans are in big trouble, so their unions and employers are uniting to lobby for the right to slash members' benefits.... The proposal on its way to Congress would give plan trustees the authority to cut pensions now to 110 percent of the PBGC-guaranteed figure, or $14,157 a year for the best-off." (LaborNotes)
The War on Pensions Goes Federal
"A soon-to-be-introduced bill could allow the trustees of some financially troubled plans, like the Central States Fund, to slash benefits already promised to current retirees. It's not yet clear how big those cuts would be.... While the reform bill's language has not yet been drafted, it is expected to closely mirror a February 2013 proposal, Solutions not Bailouts, from the National Coordinating Committee for Multi-Employer Plans (NCCMP)[.]" (In These Times / Institute for Public Affairs)
Pension Withdrawal Liability Is Dischargeable in Bankruptcy
"[The Ninth Circuit] distinguished the duty to pay a pension contribution from the duty to pay a withdrawal liability assessment, based on the different origins of these duties. The duty to pay current pension contributions arises under a collective bargaining agreement which creates an express fiduciary duty on the employer's part to make ongoing contributions. The duty to pay withdrawal liability, however, arises not under the collective bargaining agreement, but under ERISA itself." [Carpenters Pension Trust Fund of Northern California v. Moxley, No. 11-16133 (9th Cir. Aug. 20, 2013)] (Michael Best & Friedrich LLP)
[Official Guidance] Text of Treasury Department Letter to Congress on Ineligibility of Multiemployer Plan Participants for ACA Premium Tax Credits (PDF)
"[An] individual who is covered by an eligible employer-sponsored plan would not be eligible to receive a premium tax credit. The conclusion that an individual cannot benefit from both the exclusion from taxable income for employer-provided health coverage under such a plan and the premium tax credit provided by the ACA applies whether the individual is covered by a single-employer plan or a multiemployer plan." (U.S. Department of the Treasury)
Unions' Misgivings on Obamacare Burst Into View
"While praising the overall legislation, the delegates overwhelmingly passed a sharply worded resolution that demanded changes to some of its regulations ... The resolution asserts that the law, by offering tax credits to workers seeking insurance from for-profit and other companies in the exchanges, will place some responsible employers at a competitive disadvantage and destabilize the employment-based health care system." (The New York Times; subscription may be required)
ERISA Claims, Litigation and Litigation Avoidance (PDF)
58 Presentation slides; topics include: ERISA'S Statutory Framework; ERISA Remedies; ERISA Parties: Impact on ERISA Actions; ERISA Preemption; ERISA Procedural and Evidentiary Issues; Examples of ERISA Claims (in wide variety of plan types); Avoiding and Preparing for ERISA Litigation. (Mazursky Constantine LLC)
Sixth Circuit Denies Injunction to Preclude Withdrawal Liability During Labor Dispute
"During the strike, the union disclaimed interest in the striking employees, which the plan said constituted a 'withdrawal' by the company from the plan ... [T]he company has no choice but to make payments toward a $10 million liability that appears (at best) suspect, and to go to arbitration to try to clear this up and get the money back. This case looks like good news for unions (who can use this case to assert additional leverage during a strike), and a candidate for Supreme Court review (because this decision creates a Circuit split)." [Findlay Truck Line v. Central States Southeast & Southwest Pension Fund, Nos. 12-3450; 12-3531 (6th Cir. Aug. 9, 2013)] (James E. Arnold & Associates, LPA)
Withdrawal Liability Can Be Discharged in Bankruptcy: Good Thing to Know
"The Court ... noted that 'money that is owed to the Fund is not in the Fund, and is therefore not yet a Fund 'asset' and also noted that ... a debtor is not a fiduciary unless he was a fiduciary before the debt arose -- the failure to pay the debt cannot create a fiduciary status that did not previously exist. The Court also held that, unlike delinquent contributions, withdrawal liability could not be characterized as a plan asset because it arises by statute, not contract, and necessarily arises after the contractual relationship ends. So by its very nature, it is not a 'delinquent contribution.'" [Carpenters Pension Trust Fund v. Moxley, No. 11-16133 (9th Cir. Aug. 20, 2013)] (Fox Rothschild LLP)
White House Considers Awarding Obamacare Subsidies, Intended for the Uninsured, to Labor Unions
"[T]he Obama administration is [reportedly] considering offering insurance subsidies -- intended for the uninsured -- to labor union members who already have employer-sponsored coverage.... However, it's not clear what the White House can unilaterally do to address unions' concerns.... If, suddenly, the 20 million people on Taft-Hartley plans were eligible for subsidies, Obamacare's costs would skyrocket." (Avik Roy, in Forbes)
[Guidance Overview] ACA Notice Requirements for Multiemployer Plans: What's Required, What's Coming and How to Make the Most of Them (PDF)
"This [article] outlines [ACA]-mandated communications, noting which ones apply, in what situations and when. Some notice requirements are the responsibility of the plan's trustees. Others are the legal responsibility of employers, but it is important to note that it is currently unclear to what extent trustees of a multiemployer plan could assume those responsibilities for the plan's contributing employer." (Segal)
Ninth Circuit Allows Discharge of Multiemployer Plan Withdrawal Liability in Bankruptcy
"The Ninth Circuit ... [noted] that 'money that is owed to the Fund is not in the Fund, and is therefore not yet a Fund "asset."' ... The court also noted that under prior bankruptcy decisions, a debtor is not a fiduciary unless he was a fiduciary before the debt arose -- the failure to pay the debt cannot create a fiduciary status that did not previously exist." [Carpenters Pension Trust Fund v. Moxley, No. 11-16133 (9th Cir. Aug. 20, 2013)] (Littler)
D.C. Federal District Court Upholds PBGC's Imposition of Withdrawal Liability Based on 'Substantial Damage' to Multiemployer Pension Plan (PDF)
"The difference between considering an employer's withdrawal 'within the context of' other cessations ... and considering 'the impact of contributions by both the exiting employer and all other employers that have ceased contributing to the plan' ... is one of semantics, not substance.... PBGC's prior determinations have consistently focused on the overall financial health of the plan in question, as affected not only by the departure of the exiting employer, but also by other employer cessations and other market factors." [Quality Automotive v. PBGC, No. 12-1503 (D.D.C. Aug. 15, 2013)] (U.S. District Court for the District of Columbia)
District Court Rejects Equitable Exception to Excuse Interim Withdrawal Liability Payments
"After making one withdrawal liability payment, the employer initiated arbitration to challenge the plan's demand for withdrawal liability and made no further payments. Notwithstanding ERISA's 'pay now, dispute later' statutory withdrawal liability rules, the employer argued that the court should apply an equitable exception to this mandate.... The district court, observing that the Third Circuit had previously expressed skepticism regarding whether a court could apply such an equitable exception, concluded that even if the Third Circuit were to adopt [this] exception, the employer had not shown that the plan's claim was frivolous." [Integrated Grp. Pension Plan v. Black Millwork Co., 2:11-cv-05072-KM-MAH (D.N.J. Aug. 1, 2013)] (Proskauer's ERISA Practice Center)
Private Equity Fund Deemed a Trade or Business, May Be Liable for Pensions of Its Portfolio Companies
"In the court's view, an important factor in establishing [Sun Capital Partners'] status as a trade or business was that it derived non-investment returns from the portfolio company." [Sun Capital Partners III, LP v. New England Teamsters and Trucking Industry Pension Fund, 2013 WL 3814984 (1st Cir. July 24, 2013)] (Pillsbury Winthrop Shaw Pittman LLP)
[Official Guidance] Text of PBGC Approval of Amendment to Special Withdrawal Liability Provisions in The I.A.M. National Pension Fund National Pension Plan (PDF)
"Based on the facts of this case and the representations and statements made in connection with the request for approval, PBGC has determined that the plan amendment modifying special withdrawal liability rules [1] will apply only to an industry that has characteristics that would make the use of special withdrawal liability rules appropriate, and [2] will not pose a significant risk to the insurance system. Therefore, PBGC hereby grants the I.A.M. Fund's request for approval of a plan amendment modifying special withdrawal liability rules applicable to [employers whose employees work under a contract or subcontract with federal or District of Columbia government agencies regulated by the Service Contract Act, 41 U.S.C. 351 et seq.], as set forth herein. Should the I.A.M. Fund wish to amend these rules at any time, PBGC approval of the amendment will be required." (Pension Benefit Guaranty Corporation)
First Circuit Ruling on Withdrawal Liability Is Significant for Private Equity Fund Sponsors
"The District Court case that was overruled by the First Circuit Court of Appeals appeared to provide a roadmap for how to structure funds in order to avoid this treatment. Unfortunately, by reversing the District Court ruling, the Circuit Court determined that the structure of the private equity funds in this case did not avoid this treatment. If this case stands and other jurisdictions follow its lead, this could potentially have a chilling impact on the strategic options for distressed companies with these types of liabilities." (McDonald Hopkins LLC)
First Circuit Holds Private Equity Fund May Be Liable for Portfolio Company's Pension Liability
"For private equity funds and their sponsors, the Sun Capital case highlights the importance of taking controlled group liability considerations into account in structuring investments. Funds should also evaluate their current exposure to the pension liabilities of their portfolio companies and consider adjustments to their ownership structures and involvement in the management and operation of their portfolio companies. Given that Sun Capital did not decide the issue of control, significant thought should be given to having any one partnership owning 80 percent of a portfolio company that has a pension plan." [Sun Capital Partners III LP v. New England Teamsters & Trucking Indus. Pension Fund, 2013 WL 3814984 (1st Cir. July 24, 2013)] (Pepper Hamilton LLP)
PBGC Wants to Study Multiemployer Plan Guaranty Program
"The [PBGC] is requesting that the Office of Management and Budget (OMB) approve, under the Paperwork Reduction Act, a voluntary collection of information to assist PBGC in quantifying the effect of policy options on multiemployer pension plans." (Pension Benefit Guaranty Corporation)
Private Equity Funds Can Be Responsible for Withdrawal Liability of Portfolio Companies: First Circuit
"[A] multiemployer pension fund sued two private equity funds ... for the withdrawal liability of a bankrupt company that they owned and which had ceased contributing to the pension fund.... [T]he U.S. Court of Appeals for the First Circuit: [1] Decided, in a case of first impression, that at least one of the funds was not merely a passive investor but a 'trade or business' that was actively involved in managing the company's activities and received a direct economic benefit from those activities. [2] Remanded the case to the U.S. District Court for the District of Massachusetts to determine whether: [a] the second fund was also a trade or business; [b] and both funds were under common control with the company for withdrawal liability purposes[.]" [Sun Capital Partners III, LP v. New England Teamsters & Trucking Indus. Pension Fund, No. 12-2313 (1st Cir. July 24, 2013)] (Practical Law Company)
Private Equity Funds and Withdrawal Liability
"The First Circuit concluded that the Sun Funds invested in the company 'with the principal purpose of making profit' and became 'actively involved in [its] management and operation.' It also noted that the Sun Funds' general partners had authority to make decisions about hiring, terminating, and compensating the company's employees. As a result, the Court concluded that at least one of the Sun Funds was a 'trade or business.' The Court also focused on the fact that one of the Sun Funds received a direct economic benefit that an ordinary, passive investor would not derive." [Sun Capital Partners III, LP v. New England Teamsters & Trucking Indus. Pension Fund, No. 12-2312 (1st Cir. July 24, 2013)] (Seyfarth Shaw LLP)
First Circuit Concludes Private Equity Fund Can Be Liable for Pension Obligations of Portfolio Companies (PDF)
"[This] decision ... leaves several unresolved issues, but clearly states that where a private equity fund and its affiliated general partner or manager is significantly involved in the operation and management of a portfolio company, or realizes benefits beyond those of a passive investor through its relationship with a portfolio company, the private equity fund itself may become subject to the portfolio company's Title IV liabilities." [Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, No. 12-2312 (1st Cir. July 24, 2013)] (Fried Frank)
[Official Guidance] Text of PBGC Request for OMB Approval of Multiemployer Plan Data Request
"PBGC is researching the effects of potential changes to its multiemployer program. PBGC's objective is to quantify the effect of potential policy proposals on multiemployer plans that are or could enter critical status with respect to projected dates of insolvency, amount of financial assistance that PBGC would be required to provide, and the benefit changes plan participants would experience. To assist in this research, PBGC is requesting that OMB approve an information collection request of multiemployer pension plans, their actuarial service providers, and their stakeholders, including unions and relevant professional and trade organizations.... PBGC is requesting that OMB approve this collection of information for three years." (Pension Benefit Guaranty Corporation)
Developments of Interest to Sponsors of Multiemployer Health Plans, Third Quarter 2013 (PDF)
Covered topics include the rate of increase in health plan costs trends for 2013, Treasury's decision to delay the employer shared responsibility requirements until 2015, opportunities being explored by plan sponsors that focus on improved patient outcomes and cost efficacy, and the continued entrance into the health care market of alternative medical delivery and reimbursement systems such as accountable care organizations. (Segal)
Company Owners Can be Personally Responsible for Contributions to Multiemployer Pension Plans
"As business conditions deteriorated, the shareholder decided to pay creditors other than the multiemployer funds.... According to the court, the owner prioritized the payment of corporate expenses that were beneficial to him, such as bank loans that he had personally guaranteed or other personal loans, over payments to the multiemployer funds. That preference violated a duty of loyalty to the funds and constituted defalcation under bankruptcy rules. The obligation was therefore nondischargeable." (Leonard, Street and Deinard)

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