Project Labor Agreements and Withdrawal Liability

[Guest Grumpy456]

Company X enters into a project labor agreement ("PLA") with Union Y. The PLA says that any business Company X subcontracts with must sign a letter of assent ("LOA") to the PLA agreeing to be bound by the PLA's terms. One of the PLA's terms is that the Company (and by virtue of the LOA, any subcontractor) must participate in a multiemployer pension plan (the Central States, Southeast & Southwest Pension Fund). Company Y accepts a subcontractor job from Company X and signs an LOA. Company Y makes payments to the multiemployer pension plan as it is required to do. The project is completed and Company Y moves on to other construction projects in the area. Company Y receives a notice of withdrawal liability from the multiemployer pension plan. The total contributions made to the plan on behalf of Company Y's employees over the course of the project amounted to $200,000. The demand for payment of withdrawal liability is $300,000. The multiemployer plan's vesting schedule is a 5 year cliff schedule. The project lasted for 4 years which means that unless an individual for whom a contribution was made has service on other projects covered by the multiemployer pension plan, they are not even vested in the contributions that were made. In the worst scenario, Company X has already paid $200,000 to benefit the workers of other employers and, if the withdrawal liability sticks, will have to pay another $300,000 to benefit other employers' workers.

The project was a construction project and Company X and Y are both in the construction industry.

Since the project involves a construction industry employer, the multiemployer pension plan's "free look" rule is inapplicable (the plan has not been amended to extend the "free look" to construction industry employers as permitted by the Pension Protection Act of 2006). Also, it appears the construction industry exemption is inapplicable since Company Y's obligation to contribute under the PLA has ceased and Company Y continues to perform work in the jurisdiction of the CBA (PLA, in this case) of the type for which contributions were previously made.

I guess an argument could be made that "work in the jursidiction of the PLA" means work on the particular project (as opposed to work of the same type) and, unless Company Y resumes work on that particular project within 5 years, there is no withdrawal. Is that a crazy argument? What does "continues to perform work in the jurisdiction of the collective bargaining agreement" mean? Does anyone have any other suggestions to keep Company Y from paying withdrawal liability of $300,000?

[Peter Gulia]

This isn't an answer to your question; but:

Before making the agreements, did Y ask a lawyer for advice about the effect of the agreements? If so, what was the advice?

[Guest Grumpy456]

No, Y never consulted a lawyer prior to entering into the PLA by executing the LOA.

[Peter Gulia]

Sorry to hear that. So far, it seems that BenefitsLink readers don't have obvious magic for your (hypothetical) client's situation. And one imagines that Y might not be in a good mood to hear that it should have considered the true expense of the job before taking it.

In the right circumstances, a carefully written request for a review of the accuracy of the plan trustees' withdrawal-liability demand (done with all the right ERISA/MEPPAA details, and leaving behind some traps for the plan's vulnerabilities) could set the stage for a negotiation. Although in theory the plan trustees aren't supposed to accept less than the true withdrawal liability, in the real world they weigh the risks (and there is some law support for the idea that it can be proper and prudent for them to do so). More than a few of us have had some success with getting a satisfaction on a compromised amount. At this stage, the hardest part is for a client to decide how much professional effort is worthwhile.

[Bill Ecklund]

Company X enters into a project labor agreement ("PLA") with Union Y. The PLA says that any business Company X subcontracts with must sign a letter of assent ("LOA") to the PLA agreeing to be bound by the PLA's terms. One of the PLA's terms is that the Company (and by virtue of the LOA, any subcontractor) must participate in a multiemployer pension plan (the Central States, Southeast & Southwest Pension Fund). Company Y accepts a subcontractor job from Company X and signs an LOA. Company Y makes payments to the multiemployer pension plan as it is required to do. The project is completed and Company Y moves on to other construction projects in the area. Company Y receives a notice of withdrawal liability from the multiemployer pension plan. The total contributions made to the plan on behalf of Company Y's employees over the course of the project amounted to $200,000. The demand for payment of withdrawal liability is $300,000. The multiemployer plan's vesting schedule is a 5 year cliff schedule. The project lasted for 4 years which means that unless an individual for whom a contribution was made has service on other projects covered by the multiemployer pension plan, they are not even vested in the contributions that were made. In the worst scenario, Company X has already paid $200,000 to benefit the workers of other employers and, if the withdrawal liability sticks, will have to pay another $300,000 to benefit other employers' workers.

The project was a construction project and Company X and Y are both in the construction industry.

Since the project involves a construction industry employer, the multiemployer pension plan's "free look" rule is inapplicable (the plan has not been amended to extend the "free look" to construction industry employers as permitted by the Pension Protection Act of 2006). Also, it appears the construction industry exemption is inapplicable since Company Y's obligation to contribute under the PLA has ceased and Company Y continues to perform work in the jurisdiction of the CBA (PLA, in this case) of the type for which contributions were previously made.

I guess an argument could be made that "work in the jursidiction of the PLA" means work on the particular project (as opposed to work of the same type) and, unless Company Y resumes work on that particular project within 5 years, there is no withdrawal. Is that a crazy argument? What does "continues to perform work in the jurisdiction of the collective bargaining agreement" mean? Does anyone have any other suggestions to keep Company Y from paying withdrawal liability of $300,000?

[Bill Ecklund]

Company X enters into a project labor agreement ("PLA") with Union Y. The PLA says that any business Company X subcontracts with must sign a letter of assent ("LOA") to the PLA agreeing to be bound by the PLA's terms. One of the PLA's terms is that the Company (and by virtue of the LOA, any subcontractor) must participate in a multiemployer pension plan (the Central States, Southeast & Southwest Pension Fund). Company Y accepts a subcontractor job from Company X and signs an LOA. Company Y makes payments to the multiemployer pension plan as it is required to do. The project is completed and Company Y moves on to other construction projects in the area. Company Y receives a notice of withdrawal liability from the multiemployer pension plan. The total contributions made to the plan on behalf of Company Y's employees over the course of the project amounted to $200,000. The demand for payment of withdrawal liability is $300,000. The multiemployer plan's vesting schedule is a 5 year cliff schedule. The project lasted for 4 years which means that unless an individual for whom a contribution was made has service on other projects covered by the multiemployer pension plan, they are not even vested in the contributions that were made. In the worst scenario, Company X has already paid $200,000 to benefit the workers of other employers and, if the withdrawal liability sticks, will have to pay another $300,000 to benefit other employers' workers.

The project was a construction project and Company X and Y are both in the construction industry.

Since the project involves a construction industry employer, the multiemployer pension plan's "free look" rule is inapplicable (the plan has not been amended to extend the "free look" to construction industry employers as permitted by the Pension Protection Act of 2006). Also, it appears the construction industry exemption is inapplicable since Company Y's obligation to contribute under the PLA has ceased and Company Y continues to perform work in the jurisdiction of the CBA (PLA, in this case) of the type for which contributions were previously made.

I guess an argument could be made that "work in the jursidiction of the PLA" means work on the particular project (as opposed to work of the same type) and, unless Company Y resumes work on that particular project within 5 years, there is no withdrawal. Is that a crazy argument? What does "continues to perform work in the jurisdiction of the collective bargaining agreement" mean? Does anyone have any other suggestions to keep Company Y from paying withdrawal liability of $300,000?

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.

[Guest Grumpy456]

Thank you, Bill, for your comments. They were quite helpful.

[Guest Grumpy456]

Two quick follow-up questions:

1. Since one of the requirements for the Construction Industry Exemption to apply is that the former contributing employer not resume work within the jurisdiction of the PLA within 5 years, can a plan impose withdrawal liability prior to the expiration of the 5 year period even if they have no evidence that the former contributing employer has resumed such work?

2. If a plan imposes withdrawal liability and after making some number of payments consistent with such assessment the former contributing employer ultimately prevails under the Construction Industry Exemption, does the plan reimburse the employer for the withdrawal liability payments that were made pending resolution of the dispute (with interest? without interest?)? What about attorneys' fees and other costs associated with the defense?

Thanks again!

[Bill Ecklund]

Company X enters into a project labor agreement ("PLA") with Union Y. The PLA says that any business Company X subcontracts with must sign a letter of assent ("LOA") to the PLA agreeing to be bound by the PLA's terms. One of the PLA's terms is that the Company (and by virtue of the LOA, any subcontractor) must participate in a multiemployer pension plan (the Central States, Southeast & Southwest Pension Fund). Company Y accepts a subcontractor job from Company X and signs an LOA. Company Y makes payments to the multiemployer pension plan as it is required to do. The project is completed and Company Y moves on to other construction projects in the area. Company Y receives a notice of withdrawal liability from the multiemployer pension plan. The total contributions made to the plan on behalf of Company Y's employees over the course of the project amounted to $200,000. The demand for payment of withdrawal liability is $300,000. The multiemployer plan's vesting schedule is a 5 year cliff schedule. The project lasted for 4 years which means that unless an individual for whom a contribution was made has service on other projects covered by the multiemployer pension plan, they are not even vested in the contributions that were made. In the worst scenario, Company X has already paid $200,000 to benefit the workers of other employers and, if the withdrawal liability sticks, will have to pay another $300,000 to benefit other employers' workers.

The project was a construction project and Company X and Y are both in the construction industry.

Since the project involves a construction industry employer, the multiemployer pension plan's "free look" rule is inapplicable (the plan has not been amended to extend the "free look" to construction industry employers as permitted by the Pension Protection Act of 2006). Also, it appears the construction industry exemption is inapplicable since Company Y's obligation to contribute under the PLA has ceased and Company Y continues to perform work in the jurisdiction of the CBA (PLA, in this case) of the type for which contributions were previously made.

I guess an argument could be made that "work in the jursidiction of the PLA" means work on the particular project (as opposed to work of the same type) and, unless Company Y resumes work on that particular project within 5 years, there is no withdrawal. Is that a crazy argument? What does "continues to perform work in the jurisdiction of the collective bargaining agreement" mean? Does anyone have any other suggestions to keep Company Y from paying withdrawal liability of $300,000?

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.

[Brian Haynes]

I just read your post and have looked at this issue. If you want to discuss, please give me a call. Brian Haynes at 315-218-8197.