Bill Ecklund

The issue that Brian raises is one that national plans are aware of. I do work in both the Sheet Metal Industry and the Finishing Industry, and although I do not represent either of the national plans in those industries, I do get involved in withdrawal liability issues. Theoretically, the jurisdiction of a national plan is nationwide. It is very common for a contractor to be working in an area in which the collective bargaining agreement requires contributions to the national plan, and then moves to another area in which the local agreement does not require contributions to the national plan. I have never seen the national plan attempt to impose withdrawal liability in these circumstances. The PBGC Opinion Letters make it crystal clear that it is up to each plan to adopt its own withdrawal liability rules and the way for the employer to challenge those rules is through arbitration. One hidden issue, however, is that there are some contractors in some parts of the construction industry that think they are building and construction industry employers when they are really not. For example, a sheet metal contractor that does a lot of fabrication may not meet the definition of a building and construction industry employer. The Sheet Metal Workers National Plan says that to meet the test to be a building and construction industry employer, 85% or more of the employees have to spend 25% or more of their time in the field. Many contractors that have production shops will not meet this test, especially when they may have a number of employees that work strictly in their shop producing materials to be installed in the field. Other plans have their own definition.

It applies to both single employer plans and multiemployer plans. You don't see too many single employer plans jointly administered, but there are some. I represented one for many years.

Lori, You are correct. The traditional "Taft Hartley trust" must be jointly administered by an equal number of union appointed trustees and employer appointed trustees. That is established by 302©(5) of the Act. It can be a multiemployer plan trust or a single employer plan trust. All of these plans are established through collective bargaining. A plan to which more than one employer contributes but not through a collective bargaining agreement, would be a multiple employer plan and trust. You can also have an employer only trusteed plan which can be a single employer plan or a multiemployer plan. This would not be a "Taft Hartley" plan and trust even though it was collectively bargained. In the case of a 302©(5) trust, the governing trust document must provide for an equal number of union and employer trustees, although from time to time through resignations etc, there may not be an equal number of trustees appointed or attending mettings, but the trust document must provide that one side cannot outvote the other side. So for example if there are three union trustees attending a meeting with four employer trustees, the trust agreement has to either allocate four votes somehow among the attending union trustees, or in the alternative, the trust agreement could provide for block voting.

I don't know what circuit you are in but see: Michael COSTELLO et al., Plaintiffs-Appellants, v. Barry LIPSITZ et al., Defendants-Appellees, (03/07/1977) 547 F2d 1267 , 94 BNA LRRM 3075 , U.S. Court of Appeals, 5th Circuit. Even though there may be a defect in the trust agreement, Federal Courts do not have jurisdiction to correct the defect. See Local 144 Nursing Home Pension Fund v. Demisay, 508 U.S. 581 , 113 S.Ct. 2252 , 124 L.Ed.2d 522 (1993). The sole remedy is prosection of a violation of 302©

There is an alliance of Trucking Companies that contribute to Central States.. It is called the Multiemployer Pension Plan Alliance. Contact person is Herve Aitken at Ford & Harrison LLP Tel: 202 719 2000.

Under the Taft Hartley Act, if a fund is going to be jointly administered, there must be an equal number of union and employer trustees. Having a majority of employer trustees doesn't work. Having only employer trustees does work. Having said that if the committee is merely advisory and has no control over the plan, other than to recommend, that would not be a violation of the law.

Assuming that the trust agreement or the collective bargaining agreement does not authorize any increase in contributions, is there any other authority which would authorize the Trustees to collect the minimum contribution requirements? The Internal Revenue Code and ERISA both require that employers meet the minimum contribution requirement. Section 412 of the Internal Revenue Code at paragraph (11)(A) provides as follows: “Except as provided in subparagraph (B), the amount of any contribution required by this Section and any required installments under subsection (m) shall be paid the by employer responsible for contributing to or under the plan the amount described in subsection (b)(3)(A). Section 412 is the minimum funding standards and the section I cited above requires employers to pay into the plan those minimum contribution requirements.” There is identical provision in ERISA Section 302©(11)(A). Failure to meet the requirement of both the Internal Revenue Code and ERISA results in the imposition of excise taxes by the Internal Revenue Service pursuant to Section 4971. The excise tax under Section 4971 is 5%. It is imposed if the minimum contribution requirement has not been met within 8 ½ months of the close of the plan year (temporary Reg. Section 11.412©-12(b)). Although a case can be made that both the Internal Revenue Code and ERISA mandate that employers who contribute to multi-employer plans are required to meet the minimum contribution requirement, the Department of Labor may not have the same opinion. In DOL Opinion Letter 2002-07A (7/25/02), the Department of Labor responded to a request as to whether or not two independent employers could combine their single employer plans to one plan, and thereby create a multi-employer plan. Both of the single employer plans were under funded. The DOL reviewed the term “multi-employer plan” and the regulations discussing that term. One of the requirements is that the plan must be established for a substantial business purpose. In this particular case, the DOL determined that there was no substantial business purpose and therefore, the plan could not be a multi-employer plan. In writing that Opinion Letter, however, the Department of Labor made following statement: “Even though the new plan would inherit a substantial level of under funding from the Anchor and Glenshaw Plans, as participating employers in a presumed multi-employer plan, Anchor and Glenshaw would be able to limit their contributions to the plan to the amounts agreed to in the collective bargaining process rather than having to make contributions sufficient to meet the minimum funding requirement otherwise applicable to Anchor and Glenshaw Plans as to single employer plans under ERISA and the Internal Revenue Code.” The Department of Labor also noted that the PBGC’s maximum annual guarantee of benefits applicable to the single employer plans that they terminated is currently $42,954; however, if it were converted to a multi-employer plan, the guarantee would be $12,870 per year. Although the statement quoted above was not essential for the Opinion Letter, the Department did make it. It is unclear whether it is simply an offhand comment, or, in fact, expresses the Department’s opinion as to that issue. For all practical purposes, however, the issue as to whether or not Trustees can force employers to contribute beyond what their collective bargaining agreement requires is more of an academic one than a legal one. Employers would be foolish not to make the additional contribution to the plan in order to meet the MCR, because they would be incurring a greater liability for payment of excise taxes. If the Trustees of a multi-employer plan sent out a “cash call” to all contributing employers, and one or more employers failed to meet that demand, the Regulations indicate quite clearly that the Trustees can allocate the excise tax to the non-contributing employers in proportion to their unpaid contribution

I represent three Health & Welfare funds that have withdrawal liability. It is contractual , not statutory. The rules vary. You need to find out if the plan does have withdrawal liability, how it is calculated and when it applies. In all three of the plans I represent, what your client proposes to do would result in the imposition of complete withdrawal liability. Having said that, the right of the employer to withdraw is subject to the terms of the CBA. It is unusual for an employer to have the right to withdraw mid term of a contract

Brian’s point is a very valid one. Having said that however, it is possible for a Plan to exclude certain classifications of employees and not violate the minimum participation standards. Treasury Regulation § 1.410(a)-3 provides as follows: “(d) Other conditions. Section 410(a), §1.410(a)-4, and this section relate solely to age and service conditions and do not preclude a plan from establishing conditions, other than conditions relating to age or service, which must be satisfied by plan participants. For example, such provisions would not preclude a qualified plan from requiring, as a condition of participation, that an employee be employed within a specified job classification. See section 410(b) and the regulations thereunder for rules with respect to coverage of employees under qualified plans. (e) Age and service requirements. -- (1) General rule. For purposes of applying the rules of this section, plan provisions may be treated as imposing age or service requirements even though the provisions do not specifically refer to age or service. Plan provisions which have the effect of requiring an age or service requirement with the employer or employers maintaining the plan will be treated as if they imposed an age or service requirement. * * * * * Example (3). A plan which requires 1 year of service as a condition of participation also excludes a part-time or seasonal employee if his customary employment is for not more than 20 hours per week or 5 months in any plan year. The plan does not qualify because the provision could result in the exclusion by reason of a minimum service requirement of an employee who has completed a year of service. The plan would not qualify even though after excluding all such employees, the plan satisfied the coverage requirements of section 410(b) . Paragraph (d) of the regulation clearly states that participation can be conditioned upon being employed within a specified job classification. Certainly the converse must be true, that employees within one or more specified job classifications can be excluded, because they are not within the specifically included specified job classification(s). (See. Technical Advice Memoranda 9508003, last paragraph on page 2.) However, paragraph (e) makes clear that the "specified job classification" cannot be one which has as its defining characteristics the satisfaction of particular age or service requirements, since those topics are effectively pre-empted by the minimum participation standards. These conclusions are reiterated on IRS Directive issued November 22, 1994. Nothing in the Regulation or in the IRS Ruling provides much meaningful guidance as to what is a permissible "specified job classification," as opposed to an impermissible age or service condition (impermissible if it requires age or service in excess of the minimum participation standards). Example (3) in the regulation, cited above specifically operates to prohibit a classification of part-time employees or seasonal employees. The pre-ERISA Internal Revenue Code set forth the equivalent of today's minimum coverage requirements in IRC §410(b). For purposes of assessing those minimum coverage requirements, employers were permitted to exclude employees whose customary employment was for 20 or fewer hours, at that time, per week, and employees whose customary employment was for 5 or fewer months in a calendar year. This is no longer true. In legislative history to ERISA, it seems clear that Congress intended for the issues of participation of part-time and seasonal employees to be subsumed within the "year of service" determination in connection with the minimum participation standards.' Generally speaking, an employee has a "year of service" if he or she has not fewer than 1,000 hours in the relevant 12-month period. 29 D.S.C. §1052(a)(3)(A); IRC §410(a)(3)(A). There is a special direction that for a seasonal industry where the customary period of employment is less than 1,000 hours during a calendar year, the term "year of service" is to be determined under regulations. 29 U.S.C. §1052(a)(3)(B); IRC §410(a)(3)(B). Thus, it seems clearly permissible to exclude from participation employees who fall in one or more “specified job classifications”. This is true, even if those employees would otherwise meet the minimum participation standards, so long as the classifications are not based on age or time of service. The only case that I am aware of that directly addresses this point is Central States Welfare Fund v. Hartlage Truck Service, Inc., 991 F.2d 1357, 16 EBC 2243 (7th Cir. 1993). The Court held that ERISA’s minimum participation standards were not violated by the exclusion from participation of employees who are classified as “casual employees”. There was not an awful lot of analysis in that case, but he Court held that they were excluded from participation “because of their status as casual employees, not because of their age or time of service”. Likewise in the Construction Industry, this is the reason that apprentices cannot be excluded from participation as participants in the Plan. Since apprentices almost always become journeymen, the Internal Revenue Service has concluded that excluding apprentices is a violation of the minimum participation standards, because their four or five years of apprenticeship are much longer than the one year requirement under the minimum participation standards. This is probably a longer answer than you wanted, but unfortunately, nothing is simple, with respect to multi-employer defined benefit pension plans.

Question 1: Can a local Union, who is a non-contributing employer, pay into a multi-employer health and welfare plan for one employee of the union only, excluding all other employees of the union? Answer: The answer is yes, provided the trust agreement has a definition of participating employer that would include the sponsoring union and provided that the union signs a participation agreement with the trust setting forth the terms of the participation. The trustees, however, should make a policy decision as to whether or not they would allow such participation. The trustees should consider such things as adverse selection, whether or not they want to promote a policy whereby some employees are provided benefits and other are not. If this were to happen, it would be helpful if the union employees were themselves a member of a union, such as the office workers union. Although this can legally be done, there are other issues that have to be looked at dealing with discrimination: • Age Discrimination Employment Act. This Act makes it unlawful for an employer to make less valuable benefits available to older workers solely on account of age. • Americans with Disabilities Act. This law prohibits an employer from discriminating against a disabled individual with respect to the terms, conditions and privileges of employment including with respect to benefits. • Pregnancy Discrimination Act. If all of those issues are solved, then there is one other issue that needs to be looked at. Assuming that this Plan is a self-insured Plan, then you have to examine Internal Revenue Code §105(h) to determine whether or not benefits under the Plan are being provided disproportionately to the highly compensated employees. It is not illegal to discriminate, but if there is discrimination, then the benefits are taxable to the employee. You should also look at the regulations §1.105-11 to examine the specifics of this issue. Question 2: Can the union, as a contributing employer, pay into the health and welfare fund on behalf of the union office employees as a subgroup with different benefits? Answer: Yes, again provided the plan provides for it. Also, you have the same considerations as described above that have to be looked at. Question 3: Can the union, who is a contributing employer, paying into a pension plan on behalf of its employees, exclude a part-time employee because of that individual’s status as a part-time employee? Answer: You have to examine the participation requirements of the pension plan. Assuming that the plan uses a traditional 1000 hour per year approach, the answer is that if the part-time employee does not work over 1000 hours, the part-time employee can be excluded. However, if the part-time employee works over 1000 hours, then the employee would have to be included. There are two possible exceptions to this: (a) If the employees themselves are members of a Union, and the Union, as an employer, bargained with the Office Workers Union over pension benefits, then under those circumstances it is possible to exclude the part-time employees. (b) It is possible that just by excluding the one part-time employee, The Plan would still meet various discrimination requirements under the Code. IRC §410(b) imposes minimum coverage requirements on qualified plans and IRC §401(a) (4) imposes rules against discrimination in benefit and/or contribution levels. For purposes of both of these sections, the employees of an employer are divided into two categories: (i) Highly Compensated Employees (HCEs), within the meaning of IRC §414(q), and (ii) Non-Highly Compensated Employees (NHCEs). Compliance with IRC §410(b) is tested by comparing the percentage of the HCE group and the NHCE group that is covered by the plan. Compliance with IRC §401(a)(4) is tested by comparing the benefits accrued by, or contributions allocated to, the HCE participants and the NHCE participants. Under Reg. §1.410(b)7©(5), the portion of a plan that benefits collectively bargained employees is treated as a separate plan from the portion of the same plan that benefits non-collectively bargained employees. Moreover, the portion of a plan that benefits employees covered by one collective bargaining agreement is treated as a separate plan from the portion of the same plan that benefits employees covered by a different collective bargaining agreement. Each of these separate plans covering only collectively bargained employees complies automatically with IRC §410(b), pursuant to Reg. §1.410(b)-2(b)(7), and with IRC §401(a)(4), pursuant to Reg. §1.401(a)(4)-1©(6). Thus, the only coverage and discrimination issues that a multiemployer plan must face are those raised by its inclusion of non-collectively bargained employees.

I am a bite late in getting into this discussion. However, I have a couple of observations to the original posted note. In the first place, the percentage of the seller’s assets being sold does not necessarily relate to whether or not a partial withdrawal will occur in the future. Partial withdrawal occurs if there is a 70% contribution base unit decline over a period of years, regardless of assets sold. There are, however, other occurrences that can trigger partial withdrawal. For example, does the seller have more than one collective bargaining agreement and will one or more of these agreements be discontinued as a result of the sale of assets? Assuming, however, that the sale does not constitute a partial withdrawal, there still is a reason for wanting to comply with Section 4204. Even though there is no withdrawal liability at this time, there may be withdrawal liability in the future and this sale of assets could be one of several sales of assets that could eventually trigger withdrawal liability. See the Arbitration of Kroger Co. and Southern California Food Workers Pension Fund, 6EBC 1346 (1985). In response to your specific questions, if the buyer becomes insolvent and withdraws from the Pension Plan within 5 years after the sale of assets, then the buyer’s withdrawal liability is calculated at the time of withdrawal and if the buyer does not pay it, the seller is obligated to pay it, but not to exceed the amount of the seller’s withdrawal liability at the time of sale. Under the circumstances that you posit, the seller would have no withdrawal liability, so its secondary liability would be zero. Obviously, there would be no bond required. Even if there is minimal withdrawal liability, the bond would most likely be waived. See the Regulations under Section 4204, specifically, Sec. 4204.12. Generally, the purchaser would probably not object to the Section 4204 Sale, although as part of that Section, the purchaser has to assume the last 5 years worth of contributions history of the seller. Therefore, the buyer’s potential withdrawal liability is increased. After a certain number of years, however, it makes no difference because the calculation of the purchaser’s withdrawal liability will be based upon its contribution history from and after the sale. With respect to the Construction Industry discussion, there is an issue as to whether or not the exception applies. The PBGC has never issued regulations defining what it means to be an employer in the Building and Construction Industry. They originally proposed some regulations, but later withdrew them. The sticking point was work performed off of the construction site. For certain employers, such as painters, there is no issue because practically 100% of their work is performed on the site. For other contractors, however, such as sheet metal contractors, there is a real issue as to whether or not those contractors are in the Building and Construction Industry for purposes of the special rule. Each Plan has to define what it means for an employer to be in the Building and Construction Industry. For example, if a contractor had a work force of 100, 50 of whom always worked on the construction site and 50 of whom always fabricated in the shop, that contractor would not meet the definition of an employer in the Building and Construction Industry, whereas if the same 100 employees split their time between the shop and the field, that employer would most likely be in the Building and Construction Industry.

The standards for deliquency collections is set forth in PTE 76-1. It would appear that the trustees have engaged in a prohibited transaction, which may make them personally liable for the delinquencies. If the pension plan is a db plan, then the law requires that they accrue benefits even though contributions have not been made.

I would agree that the merger of single employer plans is a different ball game when examining fiduciary responsibilities. The single employer is generally performing a settlor function, but I believe that DOL Opinion Letter 89-29A is still a very valuable document. That merger was prompted by discussions at the Trustee table, as opposed to a mandate in a collective bargaining agreement/s to merge. If the parties to a collective bargaining agreement mandated merger and the Trustees were instructed to complete it, their fiduciary duties would be limited to the administration of implementing that settlor decision. One of the significant parts of FAB 2002-2 was the second to the last paragraph in which the Department stated: “It is also the view of this office that, consistent with the Plan expense guidance discussed above, it would not be appropriate for a multi-employer plan to pay for expenses attendant to activities that a multi-employer plan trustee carries out in a settlor capacity.” Many multi-employer plans do not have a source of revenue to pay for settlor functions. For example, in many instances, there is not an employer association that can pick up the bill to analyze whether a merger would be appropriate. In many cases, unions do not have adequate resources to pay for those consulting services. I recently had a case in which two multi-employer plans were proposed to be merged into a larger plan. The first thing we did was amend the trust agreement to make it clear that such a merger would be a fiduciary decision on the part of the Trustees. The good news is that it is a fiduciary function, and therefore the plan can pay for the consultant’s expenses. The bad news is that it is a fiduciary decision and the trustees have a fiduciary responsibility to act accordingly.

On the assumption that what is being asked of the trustees is to determine if the two employer plans should be merged into the healthy plan, then yes, the trustees have a fiduciary duty to act in the best interest of the plan and its participants. The DOL would take a dim view of trustees compromising the financial integrity of a plan to merge a poorly funded plan into it. On the other hand, the two employers could freeze future accruals in their plans and come in as new employers to the healthy plan. They could continue funding their plans as needed. Depending upon the funding disparity, the employers could also merge their two plans into the other plan and agree to a higher contributions to take care of the difference.

For an employer in the building and construction industry who contributes to a building and construction industry plan, the only thing that triggers withdrawal liability is continuing in business, but not contributing to the plan (i.e. going non-union, or negotiating the plan out of the CBA). His sale didn't constitute a withdrawal and the shut down by the new owner did not consititute a withdrawal. There is no need to utilize 4204. In fact that could create a problem for the new employer if it actually did withdraw later, because his withdrawal liability would be higher based upon his assumption the contribution history of the seller. The agreement referred to by EFFEN probably wouldn't work unless the trustees adopted a definition of "building and construction industry" which included this employer. The PBGC struggled with developing regulations defining the building and construction industry in the early 80's, but never came out with anything. They got hung up with how to treat contractors who fabricate in their shop and then install in the field. They were going to use an 85% test (to define the "substantially all" requirement of 4202(b)(1)(A)), but would not include the shop fabrication work as part of the 85%. In the absence of regulations, plans are free to adopt their own definition of "the building and construction industry", provided it is reasonable.

From a practical standpoint, the employer would be better off paying the plan, rather than the excise taxes. I was trying to ascertain if there is anyway that the trustees could legally require the employers to pay the MCR. Timing could be important. If the trustees could force the employers to pay, that payment could be required long before the excise taxes are imposed.

When a multiemployer plan fails to meet the minimum contribution requirement (MCR), then excise taxes are imposed upon the contributing employers. The taxes start out a 5% of the deficiency, but can grow to 100%. The taxes go to the IRS, so the funding problem still continues. Can the trustees of a multiemplyer plan legally require the employers to contribute more money than what is required in the CBA in order to meet the MCR?

If the bargaining unit people are participating because it is provided for in the collective bargaining agreement, then this would be a multiemployer plan. If this is a welfare plan, then depending on how many bargaining unit people are in the plan and the type of plan, you could have significant issues under the Mewa regulations as well as IRS section 419A issues.

This can be done, provided the trust agreement allows it. Issues raised are: (1) possible breach of fiduciary duty by trustees in allowing this to happen even if the trust agreement allows it on the theory that it still must be in the best intertest of the plan and its particpants. (2) Possible prohibited transacation ( transaction between the plan and party in interest) Need to satisfy either PTE 76-1 or ERISA 408. (3) possible ethical issues under code of professional responsibility. I have seen other cases of service providers being covered by a mulitemployer health and welfare fund, although not very often and I haven't seen one involving a law firm.

By definition a multiemployer plan is a plan to which more than one employer is required to contribute and which is maintained pursuant to one or more collective bargaining agreements between one or more unions and employers. A multiple employer plan is all other plans to which more than one employer contributes. For example a health plan sponsored by a trade association for its members, could be a multiple employer plan. Also a plan maintained by a group of controlled corporations could be multiple employer plan.

The state court action doesn't negate the obligation under the CBA to contribute. Have the trustees sue the employer in Federal Court under ERISA secs 502 and 515. You don't want to collect monies from the members. Most db plans prohibit employee contributions, it creates an accounting nightmare when distribution time occurs. As to service credits, I assume you mean vesting service credits. There is no way to stop the accrual of those credits. If you mean benefit accruals, ERISA expressly requires db plans to provide benefit accruals, even if the contributions are not made. It is irrelevant in a dc plan because the benefit is directly related to the contribution to the plan

Yes there is at least one. If the employer sells assets to the leasing compnay and enters into a 4204 agreement that is approved by the fund, withdrawal liability would not be imposed on the employer, assuming that the requirements of 4204 are met

You have a tough investigator. She seems to be confusing participants with trustees. The attendees, or at least most of them, are not fiduciaries. She seems to be treating the apprentices as though they are subject to the provisions of 408©(2). They are not. I would argue that the fund is providing benefits to the participants and that these are reasonable expenses of administering the fund. I represent a National Training Fund, and it has been providing these types of activities for years. It has been audited by the DOL and no questions were ever raised. Having said that, there has been a trend in certain areas for the DOL to take a very strident position on expenses, especially trustee expenses. For example, the DOL has recently quesitoned the "stay over Saturday night airfare rule" of many funds and has disallowed the hotel expenses related to a satruday night stay, unless the trustee could prove (with written confirmation) that He/she needed to arrive on Saturday in order to timely attend the meetings, or prove that it was cheaper to arrive on Saturday than on Sunday (including the extra expenses associated with arriving early). This is hard to prove two years after the fact. Also the trustee cannot stay the night the meeting is over unless he/she can't get home at a reasonable hour. What area is she from?

For some reason Central States sent this letter to a lot of contributing employers. I am in the process of finding out why. The reference to 4219(a) is the section that allows a plan to request information to make sure the plan can comply with the withdrawal liability rules of 4201 et. seq. In the past these letters were usually generated by reason of some change in the employer (ie. the employer stopped contributing). These series of letters appear not to have been generated as a result of that. Also the questionnare that accompanied the letter is not their standard "statement of business affairs". The letter is legitimate and should not be ignored.