Non-Collectively Bargained Participants

[Guest BR58W]

Can an employer, who employs only non-union employees, participate in a multiemployer plan under a participation or similar arrangement?

The employer currently employs both union and non-union employees. The smaller number of union employees want to decertify (i.e., get out of) the union, but the employer desparately wants to avoid withdrawal liability (because the estimated withdrawal liability amount is gigantic).

The IRM says that non-union individuals can participate in a multiemployer plan, but I have never seen a completely non-union entity participate in such a plan.

Assuming that the plan's trustees could otherwise be persuaded to let the employer continue to participate after the decertification, are there any legal impedements that would prohibit this? I am particularly curious about the plan no longer meeting the definition of a "multiemployer plan" since the employees of this employer represent over 1/3 of the active employees in the plan. Any cases or official guidance would be helpful. Thanks!

[Bill Ecklund]

Can an employer, who employs only non-union employees, participate in a multiemployer plan under a participation or similar arrangement?

The employer currently employs both union and non-union employees. The smaller number of union employees want to decertify (i.e., get out of) the union, but the employer desparately wants to avoid withdrawal liability (because the estimated withdrawal liability amount is gigantic).

The IRM says that non-union individuals can participate in a multiemployer plan, but I have never seen a completely non-union entity participate in such a plan.

Assuming that the plan's trustees could otherwise be persuaded to let the employer continue to participate after the decertification, are there any legal impedements that would prohibit this? I am particularly curious about the plan no longer meeting the definition of a "multiemployer plan" since the employees of this employer represent over 1/3 of the active employees in the plan. Any cases or official guidance would be helpful. Thanks!

Under the facts as you have described, technically yes an employer who employs only non-union employees can participate in the multiemployer plan under a participation agreement. However it is very unlikely that the trustees of a multiemployer plan would allow an employer to continue to participate in the plan after the employer no longer has a collectively-bargained obligation to do so.

If you look carefully at the definition of multiemployer plan, it does not require that every employer that is participating must do so pursuant to a collective bargaining agreement. Most employers probably would not have become a contributing employer to a multiemployer plan however without a collective bargaining agreement.

[Peter Gulia]

Mr. Ecklund, I'd be interested in your thoughts about a follow-on question:

Imagine that - before the union's decertification and before the current collective-bargaining agreement expires - the employer proposes a participation agreement that would obligate the employer to pay the multiemployer pension plan enough contributions on enough employees and shifts so that a withdrawal would not be triggered.

In evaluating whether to accept or decline the proposed participation agreement, do the plan's trustees have a fiduciary duty to evaluate whether the contribution obligation or the withdrawal liability is in the plan's best interests?

If so, what facts and circumstances should the trustees consider to evaluate which right is better?

Is it as simple as taking whichever right seems likelier to reduce (or at least not worsen) the plan's under-funding?

If triggering the withdrawal would result in the bigger, longer, or more certain right for the plan, may the trustees nonetheless choose the employer's continuing participation if the trustees find that not keeping the employer in the plan would lead to an implosion and mass withdrawal?

[jpod]

I have to admit that this is a terrifying scenario that never occurred to me, i.e., de-certification triggering W/L, but it really is as plain as the nose on your face. Does this happen a lot?

I ran across a situation recently where the Plan Trustees amended the plan to reduce future accruals to a tiny amount, so the covered employees are essentially earning almost zero pension benefits. Is it likely that the employees would threaten to de-certify (and trigger W/L) unless the employer agrees in the next CBA to provide for significantly higher pay, or perhaps some kind of add-on defined contribution plan with employer contributions?

[Guest BR58W]

Peter, I'm intrigued by your question as to whether the trustees would have a fiduciary duty in determining whether to accept a participation agreement. To me, this seems more like a settlor function (i.e., a plan design decision relating to who participates) rather than a fiduciary act. Your thoughts to the contrary?

[Guest BR58W]

Bill,

Your response is consistent with my research, although I haven't found much from the DOL or court cases on this. The IRM, in discussing 414(f) says that a multiemployer plan can cover employees of an employer that is neither a signatory to a CBA or a member of the union's controlled group. See 4.72.14.3.2.1, #3. IRM section 4.72.14.3.2.2 suggests, however, that a plan may not be "collectively bargained" unless at least 25% of the plan's participants are collectively bargained.

I am concerned about this threshold in my case because the company employs such a large percentage of the plan's active employees. Has anyone seen this 25% threshold (or any other threshold) discussed in a case or in any DOL guidance?

[Peter Gulia]

Depending on the provisions of earlier documents, it's possible that a pension plan amendment might be another settlor act. See generally Lockheed Corp. v. Spink, 517 U.S. 882 (1996); Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73 (1995); Walling v. Brady, 125 F.3d 114 (3rd Cir. 1997); Pope v. Central States, Southeast and Southwest Areas Health and Welfare Fund, 27 F.3d 211 (6th Cir. 1994); Hartline v. Sheetmetal Workers' National Pension Fund, 134 F. Supp. 2d 1 (D.D.C. 2000). However, one wonders what grounds or mode of analysis trustees could have for saying that a plan amendment was a "business" decision. Who or what authorized a trustee to act as a principal or agent to make a business decision about a worker's compensation or an employer's obligation?

But if the trustees act within a current plan provision that grants the trustees discretion concerning whether to admit or refuse a participation agreement, exercising that discretion would seem somewhat likely to be a fiduciary function.

[Bill Ecklund]

In response to fiduciary guidance:

The Trustees responsibility is to do whatever is best for the plan and its participants. Generally Trustees would rather have contributions come in on an ongoing basis than collect withdrawal liability. A declining active participant base for a pension plan is not good. Having said that, however, the devil is in the details. The scenario you suggest, with selective participation, is probably not good for the plan. Who gets to choose who is covered and not covered? Not only may there be discrimination issues depending on coverage, adverse selection is generally never good for either a pension plan or a health and welfare plan.

In response to iPod:

Decertification, does lead to withdrawal liability and it has happened in the past. There have been situations where one union is looking to replace another union and has guaranteed to the employer that the union will pick up the withdrawal liability.

In further response to BR58W:

In order for a participation agreement to be accepted by the Trustees, there has to be provisions in the trust agreement allowing for that. The settlors in establishing the trust have already made a settler decision whether or not participation agreements can be accepted and who they can cover. I believe the Trustees in administering the plan, per the trust agreement, do have a fiduciary duty in determining whether or not to accept a participation agreement. The DOL has recognized, however, that in certain situations and depending upon whether the plan documents allow it, the Trustees can act in a settlor capacity, not a fiduciary capacity.

I am aware of situations in California where apprenticeship and training funds have entered into agreements with non-union contractors to supply apprentices (in some cases even journeypersons). Those contractors have never had a CBA but they do contribute to the apprenticeship fund.

As to the 25% rule, I have not heard of that. (Doesn’t mean it doesn’t exist). You should check out 29 CFR §2510.3-37. This discusses what is needed to initially establish a multiemployer plan. Once established a multiemployer plan remains as such, even if there is only one employer left.

For Health and Welfare funds; having too many non-bargaining unit participants can cause the plan to run afoul of the MEWA rules.

[Guest Matthew Gouaux]

It's not uncommon for a multiemployer plan to allow participation by certain non-collectively bargained employees. For example, a third-party administrator's employees might be permitted to participate. The administrator generally would need to enter into a participation agreement with the plan.

One drawback of having non-collectively bargained employees in a multiemployer plan is that the plan is not entitled to a free pass on nondiscrimination and coverage testing. This may create an administrative burden. However, the burden may be a minor one because the group being tested isn’t likely to be large (collectively bargained and non-collectively bargained groups are disaggregated for testing purposes). Although there is a chance the plan will fail testing, that isn’t very likely unless the non-collectively bargained group includes a high percentage of HCEs.