Withdrawal Liability

[Madison71]

Employer in construction industry participates in a multiemployer plan and has a large unfunded vested benefit of around 2 million. Employer also owns 3 other businesses related to construction (one is a realty company that leases property back to the union shop), but the employees who do not participate in the multiemployer plan. Employer is in the construction industry and wants to close down his union business and possibly all three. Owner has been offered opportunity to take a salaried position at one of his competitors. He wants to sell the property and other assets to his competitor (arms length unrelated), but does not want to trigger withdrawal liability.

If owner/employer shuts down his business and sells the building and equipment to an unrelated employer and ends up working for him, will this trigger a complete withdrawal resulting in withdrawal liability payments? The competitor is in the same state (maryland.

THANKS!

[Madison71]

....I guess the other question is if there is an asset sale, is the buyer subject to the withdrawal liability? My thought is no because there is no withdrawal as long as the seller does not perform work in the craft or geographical area.

[Bill Ecklund]

ERISA §4203(b) has a special building and construction industry rule for employers who are in the building and construction industry and who contribute to a building and construction industry plan. Many employers who believe they are building and construction industry employers are really not, so the first inquiry is to find out whether this individual is truly in the building and construction industry. Some plans have adopted their own rule as to what a building and construction industry employer is. For example, the plan may require that to be a building and construction industry employer, 85% or more of the union employees must perform 25% or more of their work in the field. The first thing to do is find out whether the plan has a definition of a building and construction industry employer.

If the employer is truly a building and construction industry employer, then the only thing that can cause the assessment of withdrawal liability is if the employer stops contributing to the plan, but continues to perform work in the jurisdiction of the collective bargaining agreement of the type for which contributions were previously required, or resumes such work within 5 years after the date of which the obligation to contribute under the plan ceases and does not renew the obligation to contribute to the plan at the time of the resumption of business.

If the purchaser of the assets is signatory to, or will be signatory to, a collective bargaining agreement providing for contributions to the plan, there should be no problem. If the purchaser is not going to be signatory to a collective bargaining agreement, then the plan will most likely make inquiry as to whether or not this is the same business (just under a different name) or whether truly the seller has ceased all covered operations. That will be a facts and circumstances test.

You also have to keep in mind that under ERISA §4212©, if a principle purpose of any transaction is to evade or avoid liability, the withdrawal liability shall be determined without regard to such transaction.

[Guest Sieve]

A few clarifying points to Bill's good post:

• The construction exemption will only apply if, among other things, (i) substantially all of the employees for which the employer is contributing are themsleves working in the construction industry (i.e., if the employer is only contributing to the plan for those performing truck maintenance in the employer's facility & not in the field, withdrawal liability from that plan is not covered by the construction exemption), and (ii) the plan itself primarily covers construction industry employees or the plan document specifically applies the exemption.
  
• If there is no construction exemption, then all members of the controlled group also are responsible for the withdrawal liability, even if they are not in the same industry and even if they are not signatories to the CBA.
  

[Madison71]

Thanks Bill - the purchaser is covered under another plan and not the plan in question and does not want to sign on to the plan. The buyer would purchase the assets (tools, buildings, etc.). The seller would then go and work for the buyer as an employee...not share in the profits. The sellers main motivation in selling is that he has been offered a fair price and thinks its a good time to step down. They will earn a nice salary without the burden of ownership.

Another question I have is how to determine the withdrawal liability amount - they use they presumptive method. Employer is thinking about reducing contracts over the next 5 years down to a level that doesn't throw him into partial termination (more than incidental benefit), but will significantly reduce the contribution amount. He thinks by doing this over 5 years that he can bring that liabilty down to near $0. I don't see how a 2 million liability can be reduced down to near $0 over 5 years. If other employers withdraw from the plan and are not subject to liability, isn't that amount reallocated to the remaining employers...plus he has to be concerned about plan investments. He said it is all based on his level of contributions.

Thanks for your help!

[Madison71]

Thanks Sieve. According to employer, they are clearly in the construction industry...they only work on construction sites and there is no one that doesn't. I have made it clear on that point that we have to make sure to get the construction exemption.