Partial Withdrawal?

[luissaha]

We have a large plan with participating employers mainly in the newspaper/comercial printing industry. One of the newspaper employers is considering shutting down the printing operations at one of its papers and moving those functions to an unrelated employer (i.e. they may "outsource" the printing of the paper). The employer would thus no longer have an obligation to contribute to the plan under the CBA that covers the employees at that newspaper. The employer would still be obligated to contribute for other employees at several other papers. The employer is asking whether the plan would consider the proposed outsourcing to be a partial withdrawal.

In order for there to be a partial cessation of the employer's contribution obligation under ERISA section 4205, it appears that in addition to the fact that the employer would no longer have an obligation to contribute under one but fewer than all CBAs, the employer (1) would have to continue to perform printing work in the jurisdiction of the CBA, or (2) transfer such work to another location or to another related entity, or (3) continue to perform printing work at the facility. From what has been described to us by the employer, situations 1 and 3 will not apply. No further printing work will be performed in the jurisdiction of the CBA or at the plant. The issue I have is with situation 2. The employer is arguing that it does not apply because the work is being transferred to an unrelated entity. However, the wording of ERISA Section 4205(b)(2)(A)(i) is a little unclear. Could it be interpreted that a transfer of such work "to another location" is all that is required to trigger a partial withdrawal? Any thoughts would be appreciated.

[Bill Ecklund]

In the first place, it is up to each Plan to make a determination as to the application of a particular statutory section in connection with a potential partial or complete withdrawal. Having said that, it appears that if the employer does shut down its facility and ends up contracting with an unrelated entity to provide the same product that it previously produced, that would not constitute a partial withdrawal. Obviously, the “controlled group” rules have to be looked at to make sure that the entity truly is an unrelated entity.

In PBGC Opinion Letter 86-17, the PBGC opined:

It is our opinion that the language in the statute, interpreted in light of this legislative history, indicates Congress’ intent to limit Section 4205(b)(2)(A)(i) to situations in which the same employer continues to perform work in the jurisdiction of the collective bargaining agreement or transfers the same type of work to another one of its own locations. An employer that permanently ceases covered work under one of its collective bargaining agreements and instead contracts to buy the service or products from an independent third party, therefore, does not “transfer such work to another location” within the meaning of Section 4205(b)(2)(A)(i) of ERSIA