Multiple Employer Plan Liability

[Scott]

What happens when an employer that contributes to a multiple employer (NOT multiemployer) plan goes bankrupt? Are the other contributing employers forced to take up the slack?

ERISA provides that when a "substantial employer" withdraws from a multiple employer plan, the employer is liable to PBGC. I presume that if a substantial employer goes bankrupt and ceases contributions to the plan, that is a withdrawal, and the PBGC has a claim that it must pursue through bankruptcy. If the PBGC cannot recover the entire amount, are the remaining employers stuck with the liability?

ERISA is silent as to what happens when a "non-substantial" employer goes bankrupt and ceases contributions. Apparently the PBGC doesn't get involved. That leads me to believe that the plan has a claim against the employer for a share of any underfunding and that, if the plan cannot ultimately recover from the employer, the remaining employers are left holding the bag.

Is that correct?

[mbozek]

What does the plan document provide regarding the liability of the remaining employers for the benefits of a participating employer who goes bankrupt?

[Scott]

The only mention of bankruptcy of an employer that I see is the following:

"Upon an Employer's liquidation, bankruptcy, insolvency, sale, consolidation or merger . . ., all obligations of that Employer shall terminate automatically, and the Trust Fund assets attributable to such Employer shall be held or distributed as herein provided, unless the successor to that Employer assumes the duties and responsibilities of such Employer, by adopting this Plan and the Trust Agreement, or by establishment of a separate plan and trust agreement to which the assets of the Trust Fund held on behalf of the Employees of such Employer shall be transferred with the consent and agreement of that Employer."

It is unclear to me what "held or distributed as herein provided" means, and I don't see anything that addresses the liability of the remaining employers.

[Lame Duck]

IRC Section 413©(4)(A) provides that for a plan established after December 31, 1988, "each employer shall be treated as maintaining a separate plan for purposes of Section 412 unless such plan uses a method for determining required contributions which provides that any employer contributes not less than the amount which would be required if such employer maintained a separate plan."