Withdrawal Liability

[Madison71]

Please forgive my ignorance in this area. Large multi-employer plan - from the quick view of the financials, it appears the the plan is fully funded. Company is considering selling. Attorneys for the other side are talking about the large withdrawal liability. Disregarding the rules under Section 4024, can a company be subject to withdrawal liability if the current Fund's status show it as fully funded and none of the employees are even partially vested at this point?

Thank you!

[Bill Ecklund]

Please forgive my ignorance in this area. Large multi-employer plan - from the quick view of the financials, it appears the the plan is fully funded. Company is considering selling. Attorneys for the other side are talking about the large withdrawal liability. Disregarding the rules under Section 4024, can a company be subject to withdrawal liability if the current Fund's status show it as fully funded and none of the employees are even partially vested at this point?

Thank you!

The PBGC has taken the position that that ERISA does not permit a multiemployer pension plan to assess withdrawal liability against a withdrawing employer when the plan has no unfunded vested benefits as of the end of the preceding plan year, regardless of the allocation method being used by the plan. This opinion was based on a Notice of Interpretation that the PBGC published in the Federal Register on December 31, 1986 ( 51 FR 47342 ), which has since been adopted by the U.S. Court of Appeals for the First Circuit in Berkshire Hathaway Inc. v. Textile Workers Pension Fund, 10 EBC 2625 (1st Cir. 1989). See PBGC opinion letter 89-8. The Plan's financials however cannot be relied upon in determining whether or not a plan is fully funded, you need to look at the withdrawal liability report that the Plan Actuary issues each year.

[Madison71]

Thanks Bill - maybe I am reading the report incorrectly. Lets say the Plan is underfunded, but the employer's employees who are participants in the Plan are not vested in the benefits. Would you have withdrawal liability if the participants are not owed a benefit because they are not vested or would it be treated like a termination in a DC plan where all participants are automatically 100% vested.

[Madison71]

Just trying to get my arms around this thing.

From the PBGC website:

"An employer’s share of withdrawal liability is based on its allocated share of the plan’s unfunded vested benefits (UVBs)." Lets say the plan is underfunded. Disregarding the sale issue, let say the employer is selling the business and this results in a complete withdrawal. None of the participants in his company are vested.

1. Does the terminating employer have to pay withdrawal liability based on its share?

2. Withdrawal Liability statement was not provided. Is this easy to get?

3. What happens to the participants in employer's employ if goes out of business after the sale? Are they fully vested in all benefits up to that point even if they weren't vested before?

Thank you very much!!!

[Bill Ecklund]

Thanks Bill - maybe I am reading the report incorrectly. Lets say the Plan is underfunded, but the employer's employees who are participants in the Plan are not vested in the benefits. Would you have withdrawal liability if the participants are not owed a benefit because they are not vested or would it be treated like a termination in a DC plan where all participants are automatically 100% vested.

Unless the plan has adopted the attribution method for calculating withdrawal liability, the vested status of the employee/particpants is irrelevant. If the contributing employer terminates its participation in the plan, its employees do not become automatically vested. In fact, in some plans, the employees may actually lose benenfits.

[Bill Ecklund]

Just trying to get my arms around this thing.

From the PBGC website:

"An employer’s share of withdrawal liability is based on its allocated share of the plan’s unfunded vested benefits (UVBs)." Lets say the plan is underfunded. Disregarding the sale issue, let say the employer is selling the business and this results in a complete withdrawal. None of the participants in his company are vested.

1. Does the terminating employer have to pay withdrawal liability based on its share?

2. Withdrawal Liability statement was not provided. Is this easy to get?

3. What happens to the participants in employer's employ if goes out of business after the sale? Are they fully vested in all benefits up to that point even if they weren't vested before?

Thank you very much!!!

Answer to 1 is yes, unless the sale is pursuant to section 4204. Answer to 2 is yes. Plan is required to furnish to each employer, once a year an estimate of that employers's withdrawal liability. See ERISa sections 101 (k) and (l). Answer to 3 is no.

[Madison71]

Thanks Bill - very helpful

[Madison71]

One last question if you are still available to respond. What happens to the participants involved in a complete withdrawal of an employer? Are they paid out? Do they stay in the plan? I know it is portable and they can stay in if they go to another employer within the Fund, but what normally happens...or is it driven again by what the plan document says.

Thanks again!

[Bill Ecklund]

One last question if you are still available to respond. What happens to the participants involved in a complete withdrawal of an employer? Are they paid out? Do they stay in the plan? I know it is portable and they can stay in if they go to another employer within the Fund, but what normally happens...or is it driven again by what the plan document says.

Thanks again!

It is driven by the plan document. In a DB plan, if they go to work for another contributing employer they will continue as an active participant. If not, and they are vested, they beome a deferred vested participant and will receive a benefit when they reach normal retirement age, or otherwise qualify for a benefit under the terms of the plan. If the present value of their benefit is small enough they may receive a lump sum payment when they have a break in service. If they are not vested, their accrued benefit is forfeited when they have a break in service.