Contract expired -- company going out of business

[katieinny]

Is it a withdrawal event if a business that was participating in a multiemployer plan ceases to exist. Are there funding liabilities?

[mbozek]

Of course. An employer who withdraws from a multiemployer plan is liable to the plan for the amount of its share of the unfunded liabilities as determined under ERISA 4211. See ERISA 4201.

[mal]

I think there is a different rule for the construction industry. A

CI employer who decides to retire or close down does not

face withdrawal liability unless he resumes the same type of work in the same area covered by the CBA (within 5 years).

Special rules also apply in the entertainment and trucking industries.

The PBGC can also approve rules adopted by individual plans

in industries that share the characteristics of construction,

entertainment and trucking.

[katieinny]

This was a construction business. So, when you say "does not face withdrawal liability," you mean that he will not have to contribute to the plan to cover the unfunded liability? He can simply walk away and be done with it?

[mal]

I don't have the regulations in front of me, but it is

my understanding that they do not incur WL and

would not be required to pay any portion of the

plan's unfunded liability.

You may want to run a search on this topic in

BenefitsLink or Westlaw. I know there have

been articles written in the last 12 months...

due to the universally lousy returns suffered by

DB plans.

Good luck

[JanetM]

Look at section 4203 and 4211. You don't get to walk away free and clear you just calculate the liability in a different manner.

Best advise - consult atty who know MEP law.

[mal]

I reviewed this rule in "Employee Benefits Law" and

believe that employers do walk away. The authors discuss the rule

and state "Thus, unlike other employers, construction

industry employers that go out of business completely

do not incur withdrawal liability..."

My reading of 4203(b) is that employers who go out

of business and do not return w/n 5 years to perform

the same type of work in same area do not accrue

any withdrawal liability under 4203(a).

[JanetM]

There are a few hoops to jump thru - first .........

The special construction rule applies if (1) the plan primarily covers employees in the building and construction industry, and (2)

substantially all of the employees with respect to whom an employer has an obligation to contribute under the plan, perform work in the

building and construction industry (ERISA section 4203(b)(1)).

Second.............

Under the definition in section 4203(b)(2) of ERISA, a complete withdrawal occurs only if a construction industry employer ceases to

have an obligation to contribute under the plan, and the employer either continues to perform previously covered work in the area of the

collective bargaining agreement or resumes such work within five years without renewing the obligation to contribute at the time of

resumption.

This was enacted because congress and PBGC agreed that these employers not contributing to the plan would not necessarily weaken the plan. In the last few years I have seen only one MEP that did not have poor financial results. Plan could argue that the cessation of contributions will add to the funding problems. Keep in mind - the fund can levy a liability and you will have to pay first then litigate later.

[katieinny]

I was just reminded that one of the issues for this client is that the term of the participation agreement expired -- and that's when the business shut down.

Does the expiration of the contract have any affect on the withdrawal liability? What if it were another type of business, such as trucking, that was working under a specific contract that expired -- which resulted in the company going out of business?

[mbozek]

Withdrawal occurs when an employer permanently ceases to have an obligation to contribute under the plan, e.g., when the CBA expires. ERISA 4203(a)(1). Employer includes all trades or business that are under common contarol within the meaning of PBGC reg. 4001.3

[katieinny]

Of course that makes sense. I've been doing some substantial reading on withdrawal liability today. The amounts can be pretty stiff, so I wanted to get some input from others. Thank you all for your help.

[Effen]

The theory behind letting a CI employer "walk away" without a withdrawal liability is that the jobs don't usually walk away with the employer. If one employer goes out of business, another employer will soak up whatever construction jobs the terminating employer would have worked and the workers that would have worked them.

The Plan is not necessarily adversely impacted unless the amount of construction being done in the area decreases or if the union membership drops off.

If I am an electrician working for company A and company A goes away, I will just go to work for company B. The fund will collect the same contribution from B that it would have received from A assuming the amount of work in the area remains constant.

[KJohnson]

Rule is definitely different for the Construction Industry. If you go out of business and do not "come back" you do not have a withdrawal if you are a construction industry employer-- 4203(b)(2)