Spinoff Single Employer DC from Multiemployer DB

[Guest arasalin]

I have a client that contributes to a multiemployer defined benefit pension fund under two collective bargaining agreements, one covering one type of employees and one covering another type. The client wants to pull all of the employees covered by one of the CBAs out of the DB plan and instead cover them under a single employer DC plan that it will create (and we'll assume for now that it will be a jointly trusteed Taft-Hartley single employer DC plan).

This switch from DC to DB would occur under a new CBA is negotiated between the parties. Is there any way that the employer can avoid withdrawal liability here? It seems to me that pulling out the whole group covered by the CBA would be a partial withdrawal under ERISA 4205(b)(2)(A)(i), and that there isn't a way to transfer the DB liabilities to the DC plan to get a reduction under ERISA 4211(e), as we would if the employer were starting its own DB plan.

Any ideas?

[Bill Ecklund]

I have a client that contributes to a multiemployer defined benefit pension fund under two collective bargaining agreements, one covering one type of employees and one covering another type. The client wants to pull all of the employees covered by one of the CBAs out of the DB plan and instead cover them under a single employer DC plan that it will create (and we'll assume for now that it will be a jointly trusteed Taft-Hartley single employer DC plan).

This switch from DC to DB would occur under a new CBA is negotiated between the parties. Is there any way that the employer can avoid withdrawal liability here? It seems to me that pulling out the whole group covered by the CBA would be a partial withdrawal under ERISA 4205(b)(2)(A)(i), and that there isn't a way to transfer the DB liabilities to the DC plan to get a reduction under ERISA 4211(e), as we would if the employer were starting its own DB plan.

Any ideas?

Is this employer in the Building and Construction Industry? Do both CBA’s still provide for contributions to the DB Plan?

I had occasion to address this issue in the Building and Construction Industry several years ago. The local collective bargaining agreement provided for contributions to several classifications of construction workers, including a classification called “classified” workers. The CBA provided for contributions to a DB pension fund on behalf of all classifications of workers. Historically, however, classified workers did not stay around long enough to become vested. As result, the local contractor association and the local union negotiated the classified workers out of the DB plan and created an annuity plan.

Within the course of addressing this issue, I spoke with a person at the PBGC, who is regarded as one of the experts in the Building and Construction Industry.

There are special rules dealing with reduction of partial withdrawal liability in the Construction Industry. Specifically, ERISA §4208(d)(1) states as follows:

An employer to whom §…4203(b)…applies is liable for a partial withdrawal only if the employer’s obligation to contribute under the plan is continued for no more than an insubstantial portion of its work in the craft and area jurisdiction of the collective bargaining agreement of the type for which contributions are required.

The PBGC person’s interpretation of Section 4208(d)(1) is that it would only apply in the case where the employer is double breasted. His reading of the Section focuses not on the “insubstantial portion” of the language, but on the following language:

…of its work in the craft and area jurisdiction of the Collective Bargaining Agreement of the type for which contributions are required.

His position would be that since no contributions are required on behalf of classified workers in the current Collective Bargaining Agreement, the employer’s obligation to contribute is continued for all of the employers work in the craft and area jurisdiction of the Collective Bargaining Agreement. And, therefore, the employer would not be liable for a partial withdrawal from the Plan.

This argument does make some sense, especially when you compare the language in Section 4208(d)(1) with the language contained in ERISA Section 4205(b)(2) that describes a partial cessation of the employer’s contribution obligation. Section 4205(b)(2)(A)(i) states that a partial withdrawal occurs when the employer permanently ceases to have an obligation to contribute under one or more but fewer than all Collective Bargaining Agreements, but continues to perform work in the jurisdiction of the Collective Bargaining Agreement of the type for which contributions were previously required…

In other words, that Section specifically compares a previous Agreement with the current Agreement. The language in Section 4208(d)(1) only talks about current obligations and does not refer to previous obligations.

Under this interpretation, a partial withdrawal would occur if the Collective Bargaining Agreement still required contributions on behalf of classified workers, but the employer was not required to make contributions on behalf of certain or all of its classified workers (by reason of being double breasted).