Bill Ecklund

The initial assessment notice contains the amount of the withdrawal liability. That is the lump sum that the employer can pay to pay off its withdrawal liability. The periodic payment schedule is the lump sum with interest added.

That is exactly what happens. The liability does not go away. It is reallocated to the other contributing empoyers

There may be a prohibited transaction issue. See ERISA Opinion Letter 82-32A

As a follow up to my earlier comment, section 302©(5) of the Taft Hartley act requires that for contributions to be paid to a pension plan there must be a trust estableshed and it must be jointly administered by an equal number of union and employer trustees. Most likely if the union did want to establish a 401(k) plan it would have to be in the collecttive bargaining agreement. By the way the pension fund could be administered by employer only trustees, but if there are any union trustees there must be an equal number of union and employer trustees.

Assuming that the fund is not established in the CBA and receives no employer contributions, it does not have to be jointly administered

A defined benefit pension plan has the right and ability to issue an assessment of withdrawal liability against any former contributing employer. From an internal perspective, most plans will not do that without some evidence that the employer has withdrawn (within the meaning of ERISA Sections 4203 or 4205) from the pension plan. Once the assessment is made, the employer against whom the assessment is made, must make the withdrawal liability payments until the matter is finally resolved. The resolution starts with a request for review. If that is not successful, then the employer is required to arbitrate the matter and under limited circumstances, the arbitration decision can be appealed to Federal District Court. If the employer is successful, the plan is required to refund the payments already made. If the plan agrees in the review process to rescind the withdrawal liability assessment, the plan will probably not agree to pay interest or attorney’s fees. The employer can ask for interest and attorney’s fees in the arbitration process. More than likely, interest and attorneys fees would not be awarded by an arbitrator. This plan has adopted the arbitration rules provided for by the “Multi Employer Pension Plan Arbitration Rules for Withdrawal Liability Disputes” sponsored by the International Foundation of Employee Benefit Plan and administered by the American Arbitration Association. These rules (which you can examine on the website of the American Arbitration Association) require a fee to be paid to the American Arbitration Association to start the process. For withdrawal liability disputes below one million dollars, the fee is $650.00. If the matter proceeds to arbitration, you can request a refund of this fee if the employer is successful. Again, it is up to the arbitrator and unless the circumstances are really egregious, the fee would probably not be ordered to be refunded by the plan.

Your argument is that under ERISA Section 4203(b)(2) Company Y has ceased to have an obligation to contribute under the Plan, but it is not working in the jurisdiction of the collective bargaining agreement of the type for which contributions were previously required. In this case, the CBA is a PLA. The jurisdiction of the collective bargaining agreement would be the project itself and Company Y is not performing work on the project. If Company Y, however, goes back to work on that particular project within a 5 year period but does not renew its obligation to contribute to the Plan, then a withdrawal would have occurred. Under the withdrawal liability rules, it is irrelevant as to whether or not the employees on whose behalf contributions are being made are vested in the Plan. In order to contest the withdrawal liability, Company Y has to make a request for review with the plan setting forth its arguments. If that request for review does not result in the elimination of withdrawal liability, Company Y has no choice but to arbitrate that. There is a strict statutory timeframe, however, for doing all of this and in the meantime the withdrawal liability payments have to be made. Failure to follow the statutes time frame results in the withdrawal liability assessment becoming unchallengeable.

This would be a violation of 8(a)(1) and 8(a)(3) of the National Labor Relations Act. The union could set up its own fund and provide that discriminatory benefit, but that fund could not be jointly trusteed nor could it receive contributions through the collective bargaining agreement. It would have to be funded through union dues.

Does the union say "no contract" because it has expired and a new contract is being negotiated, or because the employer is non-union. If the employer is non-union and the fund wants to cover the employees, you should enter into a participation agreement that spells out the classes of employees that are covered. That agreeemnt will also provide for delinquency collection procedures and should allow for a payroll audit. It is quite common for multiemployer funds to have participation agreements with contributing employers to cover the NBU's. If this is a pension plan, keep in mind that there are discrimination rules that apply with respect to coverage. If it is health fund you have potential mewa issues. The trustees have to determine if they want to provide coverage. If they do the fund can accept the contributions with a participation agreement. Union trustees are generally not inclined to allow a non-union employer in the fund.

The more sophisticated multi-employer health and welfare funds have the ability to track claims on an employer specific basis. Generally, multi-employer funds to do not want to give out that data, because it ends up being used by employers who may attempt to negotiate out of a health and welfare fund. I am aware of no legal requirement that the health and welfare fund must distribute that information upon request, unless the Trustees have specifically authorized it. There are also some potential tax ramifications if the fund “experience rates” employers that participate in the fund. There are limitations on fund reserves under section 419(A) of the Internal Revenue Code, which come into play. I am aware of no health and welfare funds that do experience rate the employers that participate in the fund, although in some cases, funds will charge an “entrance fee”. Some health and welfare funds provide several different plans that will cost different amounts and the employer negotiates with the union as to which plan they wish to participate in. Generally, the health and welfare consultants will cost out the experience of each of the separate plans, but that is not done on an employer specific basis. It is done on a plan basis.

Each plan has its own rules regarding how abatements are handled. You need to contact the plan administrator to find out what the rules are.

Actually, it really isn't. SMW does use the last ten years. If you look at the formula on the website, it uses the last five years worth of contributions for each year in the last five years. So for a withdrawal in 2005, the formula requires a listing of the last ten years worth of contributions from 1995 - 2004. If Central States were to use only the last 5 years, the withdrawal liability would be 256.90% of the last five years of contributions.

That is the way it works out. An actual assessment from Central States will show the last ten years of contributions for the employer and compare that with all employers' contributions over the last ten years. That will result in an "Allocation Fraction" which is multiplied by the UVB to give the withdrawal liability.

UVB as of 12/31/04 was $10,878,773,887. As of 12/31/05 UVB was $12,487,353,003. To calculate withdrawal liability for a withdrawal in 2006, add up the last ten years worth of contributions. 1996-2005, and multiply the total by 128.45%

You have to be careful in “freezing” the Plan. Under some circumstances, that may constitute Plan termination. The typical arrangement is for the cessation of benefit accruals, but continuation of vesting accruals, until the Plan is financially able to re-start the benefit accruals. For purposes of determining whether or not contributions are counted for Davis Bacon purposes, one has to look at the prevailing wages (including fringe benefit contributions) in the area. There are specific regulations on what has to be included and what does not have to be included. For example, an employer is not required to make a specific pension plan contribution, where pension plans are required in the area, but is required to pay a wage and fringe rate, which is “prevailing” in the area. The fact that a participant is not accruing any benefits does not determine whether the fringe benefit contribution is or is not counted as fringes for purposes of Davis Bacon. That determination is made by what is “prevailing” in the area

The case is: 08/08/1985, U.S. Court of Appeals, 8th Circuit, CENTRAL HARDWARE COMPANY, a corporation, Appellee, v. CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, and Loran W. Robbins, Marion M. Winstead, Harold J. Yates, Earl L. Jennings Jr., Howard . . . . ., 770 F2d 106, 6 EBC 2525, 120 BNA LRRM 3029, 103 CCH LC ¶11637, 1985-2 CCH Trade Cases ¶66739. It says that the trustees of a pension plan can terminate an employer from a pension plan, if the employer negotiates a CBA that the trustees believe will not be actuarial sound for the plan. In the Central Hardware case the employer and union negotiated a provision that said all current employees would continue to particpate in the Central States plan while all new hires would participate in a company plan. The court upheld the ability of the trustees to reject employer contributions under this scenario.

See: 04/06/1990, U.S. District Court, District Of Columbia, Harrison COMBS, John J. O'Connell, and Paul R. Dean, as Trustees of the United Mine Workers of America 1950 and 1974 Pension Plans, Plaintiffs, v. CLASSIC COAL CORPORATION, Defendant., 58 USLW 2630, 12 EBC 1229, 1990 WL

Generally, the Trust Agreement will provide who appoints the union trustees and who appoints the employer trustees. Typically, the union or the President or the Executive Committee of the union will appoint the union trustees. The appointment process is usually governed by the local union’s constitution and bylaws. ERISA basically has no restrictions on appointment or removal of trustees, except that individuals convicted of certain crimes cannot be appointed as trustees. The Labor Department has issued an Opinion Letter (cited in another post) that a trustee may not be appointed for life. Other than that, the appointment process and the removal process is left to the discretion of the appointing party

The actuarial assumptions used in calculating withdrawal liability are usually determined by the Actuary. The Trustees generally accept the recommendation of the Actuary in selecting those assumptions. The assumptions can change from time to time, based upon the Actuary’s determination that an assumption has now become unreasonable to use. Generally once adopted, the actuarial assumptions are used for withdrawals during a Plan year. It would be highly unusual (although probably not illegal) to change those assumptions during the Plan year. If a withdrawing employer believes that an actuarial assumption has been improperly adopted or changed, their recourse is to first request a review and then arbitrate the issue.

The formula for calculating the payment is in the statute. It is based on the average of the CBU's over a period of time, multiplied by the highest rate in the CBA. It is intended to somewhat replicate the payment made under the CBA prior to withdrawal. It is an annual payment, but plans can adopt rules to have it paid quarterly or monthly.

A multiemployer plan can sponsor a cafeteria plan, if it has been bargained for and is in the labor agreement.

If he is a full time employee of a sponsoring union, he cannot receive compensation for being a trustee except for reimbursement of actual reasonable expenses incurred by or for him. (ERISA sec. 408©(2))

Is this employer in the Building and Construction Industry, contributing to a building and construction industry plan?

You have reversed the sequence of employer withdrawal. Withdrawal liability would never be assessed if the employer still has an obligation to contribute to the plan. Normally, an employer could not “choose” to stop making contributions. The collective bargaining agreement provides an obligation to contribute to the plan. If the employer negotiates that contribution obligation out of the CBA, then that constitutes a statutory withdrawal and withdrawal liability would be assessed. There is no way to avoid that. The library at the International Foundation of Employee Benefits Plan has quite a few articles on the subject. Their website is www.IFEBP.org