Bill Ecklund

Under ERISA 4205(b)(2)(A) one only looks to whether or not the seller continues operations that previously required contributions to the plan. Assuming that A and B are separate unrelated entities, not part of any common control group, the sale of assets to B should not trigger a partial withdrawal. But keep in mind that for purposes of the 70% contribution decline test, CBU’s for unit 1 will continue to be counted as part of A’s contribution history. This means that if Units 2, 3, or 4 are sold off, there is a greater likelihood that the 70% threshold test would be met. By going through a 4204 sale, the contribution base units attributable to unit 1 are removed from the seller’s history. If B does not intend to contribute to the pension plan for any length of time, or not at all, it should not agree to a 4204 sale. If §4204 is utilized, B’s withdrawal liability on the date of it's purchase will include the last 5 years worth of contributions by the seller.

Normally, the plan document should identify who has the power to amend, and the trust document would not have power to override the plan document. The trust agreement usually contains a amendment provision. It generally will be either the plan sponsors or the trustees that can amend.

If the trust agreement allowed the trustees to amend the document, probably would not be a breach of fiduciary duty. Trustees can act in a settlor capacity.

This is nothing that would come from the PPA. The purpose of the surcharge was to encourage the parties to the CBA to adopt a schedule. Once that is done, the schedule is fixed by law for the term of the CBA. Any scheme for increased contributions, such as you are referring to, would have to be authorized by the CBA or the trust agreement.

We contacted HHS last week and were told that within two weeks they will issue advice on this very confusing issue.

Employers are generally not fiduciaries to a Fund. "Fiduciary" is defined in ERISA section 3(21)(A). Unless the employer is rendering investment advice, has discretion in asset management or discretion in plan administration, it would not be a fiduciary.

What status has the actuary certified the plan to be in? Trustees of plans that are in endangered or critical status may not accept a collective bargaining agreement or participation agreement with respect to a multiemployer plan that provides for (1) a reduction in the level of contributions for any participants; (2) a suspension of contributions with respect to any period of service, or (3) any new direct or indirect exclusion of younger or newly hired employees from plan participation. (ERISA Section 305). If the plan is in endangerd or critical status and you negotiate a CBA in the manner you have described, the trusees will reject the contract and the employer will have completely withdrawn from the plan. If the plan is not in endangered or critical status, a 70% contribtuion base unit decline is only one of two things that can trigger partial withdrawal liability. (see ERISA Section 4205). A partial cessation of the employer's contribution obligation will also trigger this. This is defined in 4205(b)(2): There is a partial cessation of the employer's contribution obligation for the plan year if, during such year— (i) the employer permanently ceases to have an obligation to contribute under one or more but fewer than all collective bargaining agreements under which the employer has been obligated to contribute under the plan but continues to perform work in the jurisdiction of the collective bargaining agreement of the type for which contributions were previously required or transfers such work to another location or to an entity or entities owned or controlled by the employer, or (ii) an employer permanently ceases to have an obligation to contribute under the plan with respect to work performed at one or more but fewer than all of its facilities, but continues to perform work at the facility of the type for which the obligation to contribute ceased. The 70% CBU decline is pretty easy to calulate and you don't need an actuary to do that. You may need a lawyer to help you determine if there is a partial cessation of the employer's contribution obligation. Keep in mind that most multiemployer plans have very broad powers for trustees to determine whether or not an employer can particpate in the plan. If the CBA contains langauge that they believe is not in the besst interests of the plan, they can reject the contract and the employer will have withdrawn. See Central Hardware Co. v. Central States Pension Fund, 6 EBC 2525 (1985)

What status has the actuary certified the plan to be in? Trustees of plans that are in endangered or critical status may not accept a collective bargaining agreement or participation agreement with respect to a multiemployer plan that provides for (1) a reduction in the level of contributions for any participants; (2) a suspension of contributions with respect to any period of service, or (3) any new direct or indirect exclusion of younger or newly hired employees from plan participation. (ERISA Section 305). If the plan is in endangerd or critical status and you negotiate a CBA in the manner you have described, the trusees will reject the contract and the employer will have completely withdrawn from the plan. If the plan is not in endangered or critical status, a 70% contribtuion base unit decline is only one of two things that can trigger partial withdrawal liability. (see ERISA Section 4205). A partial cessation of the employer's contribution obligation will also trigger this. This is defined in 4205(b)(2): There is a partial cessation of the employer's contribution obligation for the plan year if, during such year— (i) the employer permanently ceases to have an obligation to contribute under one or more but fewer than all collective bargaining agreements under which the employer has been obligated to contribute under the plan but continues to perform work in the jurisdiction of the collective bargaining agreement of the type for which contributions were previously required or transfers such work to another location or to an entity or entities owned or controlled by the employer, or (ii) an employer permanently ceases to have an obligation to contribute under the plan with respect to work performed at one or more but fewer than all of its facilities, but continues to perform work at the facility of the type for which the obligation to contribute ceased. The 70% CBU decline is pretty easy to calulate and you don't need an actuary to do that. You may need a lawyer to help you determine if there is a partial cessation of the employer's contribution obligation. Keep in mind that most multiemployer plans have very broad powers for trustees to determine whether or not an employer can particpate in the plan. If the CBA contains langauge that they believe is not in the besst interests of the plan, they can reject the contract and the employer will have withdrawn. See Central Hardware Co. v. Central States Pension Fund, 6 EBC 2525 (1985)

A Rehab plan can't change the vesting schedule. Such a plan can reduce "adjustable benefits" to reduce liability, but cannot change vesting to ten years.

The trust document will have a provision in it as to how it is amended. Sometimes the trustees are able to amend the trust agreement and sometimes that authority is left to the settlors. You need to look at the trust document. The trust agreement, however, has to have a provision for the appointment and removal of trustees (See ERISA section 403). Generally the employer(s) (or association) that is one of the sponsors will appoint the management trustees and the union (the other sponsor) will appoint the union trustees. There can be restrictions put into the agreement as to qualifications to be a trustee. For example some trust agreements require that a managment trustee has to be an employee or principal of a contributing employer. Trustees cannot be appointed for life and ERISA section 411 provides other restrictions. The original document had the union and employer choosing their own trustees. The trustees themselves changed the document and gave themselves the sole power to appoint and remove. If they had the power to amend the trust agreement, then that provision is valid. Some of the trusts that I represent have a provision that the union appoints the union trustees and the employer trustees select successor employer trustees. That will generally happen when there is not an employer assoication to select the employer trustees, and it is too cumbersome to have a trustee election by the contributing employers. The original trust document says the trustees can amend the agreement but does not specify that they can change the trustees. If there are no restrictions in the amendment clause of the T/A or there are no other prohibitions in the T/A relative to appointment of trustees, then they have the power to do that. There is nothing in ERISA that would prohibit that.

The trust document will have a provision in it as to how it is amended. Sometimes the trustees are able to amend the trust agreement and sometimes that authority is left to the settlors. You need to look at the trust document. The trust agreement, however, has to have a provision for the appointment and removal of trustees (See ERISA section 403). Generally the employer(s) (or association) that is one of the sponsors will appoint the management trustees and the union (the other sponsor) will appoint the union trustees. There can be restrictions put into the agreement as to qualifications to be a trustee. For example some trust agreements require that a managment trustee has to be an employee or principal of a contributing employer. Trustees cannot be appointed for life and ERISA section 411 provides other restrictions. The original document had the union and employer choosing their own trustees. The trustees themselves changed the document and gave themselves the sole power to appoint and remove. If they had the power to amend the trust agreement, then that provision is valid. Some of the trusts that I represent have a provision that the union appoints the union trustees and the employer trustees select successor employer trustees. That will generally happen when there is not an employer assoication to select the employer trustees, and it is too cumbersome to have a trustee election by the contributing employers.

The trust document will have a provision in it as to how it is amended. Sometimes the trustees are able to amend the trust agreement and sometimes that authority is left to the settlors. You need to look at the trust document. The trust agreement, however, has to have a provision for the appointment and removal of trustees (See ERISA section 403). Generally the employer(s) (or association) that is one of the sponsors will appoint the management trustees and the union (the other sponsor) will appoint the union trustees. There can be restrictions put into the agreement as to qualifications to be a trustee. For example some trust agreements require that a managment trustee has to be an employee or principal of a contributing employer. Trustees cannot be appointed for life and ERISA section 411 provides other restrictions.

There are so many out there. Start with this one: Deak v. Masters, Mates & Pilots Pension Plan, 821 F.2d 572 (11th Cir. 1987), cert. denied, 108 S.Ct. 698, 9 EBC 1306. Also: 04/26/1990, U.S. District Court, Colorado, Joint Apprenticeship and Training Committee of Sheet Metal Workers' Intern. Ass'n, Local No. 9 v. Flansburg, 744 F Supp 1008, 119 CCH LC ¶10758, 1990 WL 120015 Thanks, Bill. Deak is very helpful. It seems to me that a trustee is acting in a fiduciary capacity when it determines the date that a withdrawing employer completely withdrew from a fund. It seems that it would be a fiduciary breach if a trustee based that decision on loyalty to the appointing party (i.e. picking a date b/c it results in less withdrawal liability for the withdrawing er). Have you seen any cases with this type of fact pattern? The date on which an employer has withdrawn from a multiemployer plan is pretty much determined by the statute. There may be fact situations in which it is unclear as to what the correct date is, and there are cases that have addressed that issue. If there is some ambiguity as to what the withdrawal date is, the fact that the trustees select one date over another, even if it would favor an appointing party, may not be a breach of fiduciary duty. However, where it is clear as to what the withdrawal date is, and the trustees select a different date because it does favor one of the appointing parties, that would be a breach of fiduciary duty. Specifically, the breach would be failure to follow the plan documents and the law, i.e. a violation of ERISA §404(a)(1)(1)(D). I am not aware of a case that addresses the issue of fiduciary duties in selecting the withdrawal date for purposes of assessing withdrawal liability. That does not mean that there are not any out there, I am just unaware of any.

There are so many out there. Start with this one: Deak v. Masters, Mates & Pilots Pension Plan, 821 F.2d 572 (11th Cir. 1987), cert. denied, 108 S.Ct. 698, 9 EBC 1306. Also: 04/26/1990, U.S. District Court, Colorado, Joint Apprenticeship and Training Committee of Sheet Metal Workers' Intern. Ass'n, Local No. 9 v. Flansburg, 744 F Supp 1008, 119 CCH LC ¶10758, 1990 WL 120015

That is consistent with what you first stated. That doesn't mean there is no withdrawal liability. It means that the plan is at least 80% funded.

Without seeing the report it is hard to say. Each plan has its own statement format for delivering information required by the PPA. What zone is this plan in? If it is yellow or red, the contribution schedule may be what is required by the Funding Improvment Plan or the Rehabilitaiton Plan. The withdrawal liability amount for the contributing employer may be the estimate of withdrawal liability for that employer for a 2009 withdrawal. If this is a calendar year plan, that amount is only valid for 2009 withdrawals. The information for 2010 withdrawals will most likely not be available until spring or summer. I'm not sure if I know what you mean by zone - I believe it is in the Central by the name of the Fund. It says Summary Plan Information on top of this report and says this is a new report required by PPA and will be issued annually in the futre. Thank you. Zone refers to the funded status of the plan. The choices are: green, yellow or red. What is the name of the plan?

Without seeing the report it is hard to say. Each plan has its own statement format for delivering information required by the PPA. What zone is this plan in? If it is yellow or red, the contribution schedule may be what is required by the Funding Improvment Plan or the Rehabilitaiton Plan. The withdrawal liability amount for the contributing employer may be the estimate of withdrawal liability for that employer for a 2009 withdrawal. If this is a calendar year plan, that amount is only valid for 2009 withdrawals. The information for 2010 withdrawals will most likely not be available until spring or summer.

It is driven by the plan document. In a DB plan, if they go to work for another contributing employer they will continue as an active participant. If not, and they are vested, they beome a deferred vested participant and will receive a benefit when they reach normal retirement age, or otherwise qualify for a benefit under the terms of the plan. If the present value of their benefit is small enough they may receive a lump sum payment when they have a break in service. If they are not vested, their accrued benefit is forfeited when they have a break in service.

Answer to 1 is yes, unless the sale is pursuant to section 4204. Answer to 2 is yes. Plan is required to furnish to each employer, once a year an estimate of that employers's withdrawal liability. See ERISa sections 101 (k) and (l). Answer to 3 is no.

Unless the plan has adopted the attribution method for calculating withdrawal liability, the vested status of the employee/particpants is irrelevant. If the contributing employer terminates its participation in the plan, its employees do not become automatically vested. In fact, in some plans, the employees may actually lose benenfits.

The PBGC has taken the position that that ERISA does not permit a multiemployer pension plan to assess withdrawal liability against a withdrawing employer when the plan has no unfunded vested benefits as of the end of the preceding plan year, regardless of the allocation method being used by the plan. This opinion was based on a Notice of Interpretation that the PBGC published in the Federal Register on December 31, 1986 ( 51 FR 47342 ), which has since been adopted by the U.S. Court of Appeals for the First Circuit in Berkshire Hathaway Inc. v. Textile Workers Pension Fund, 10 EBC 2625 (1st Cir. 1989). See PBGC opinion letter 89-8. The Plan's financials however cannot be relied upon in determining whether or not a plan is fully funded, you need to look at the withdrawal liability report that the Plan Actuary issues each year.

Go to the website of the Sheet Metal Workers National Pension Fund: http://www.smwnpf.org/ They have the presumptive method formula for the calculation of withdrawal liabiliy for their plan on the website. You can create an excel spreadsheet and play around with the variables.

No, but it gives the plan the right to accelerate the payments and demand the whole withdrawal liability payment immediately. Any challenge has to be made by demanding arbitration within the time period specified in the statute. If that is not done, there is no basis for challenging the assessment.

Unless the right to do that is granted in the trust agreement or the CBA, they do not have the authority to enforce that.

I have a similar question. If our collective bargaining agreement does not expire until two years, but we want to "lock in" the contribution schedule for later years, can we adopt a contribution schedule that locks in those years even though the collective bargaining agreement will otherwise expire in two years? We are concerned that the plan sponsor will increase the contribution rates in later years. You can always open the contract (assuming the union is williing) and adopt the schedule provided in the Rehab plan. This will avoid the surcharge and you are in compliance with the rehab plan until the CBA expires.