Construction Industry Exemption

[Guest GordonCHI]

Where a multiemployer pension fund has already assessed partial withdrawal liability against an employer, what effect does a permanent closure of the business have on that liability? In other words, does the complete cessation of all covered work in the union's jurisdiction cure the partial withdrawal liability? Does it save the employer from triggering complete withdrawal liability going forward?

[Effen]

Seems to me that the fact the fund assessed a partial withdrawal liability means that the employer did not meet the construction trade exemption. The rules for partial and total withdrawal are the same, so if fund assessed a partial, they will most likely asses a total.

Or are you saying they incurred a partial for some other reason (for example, one unit bargained out of the plan) and now they are closing their operation?

[Bill Ecklund]

Where a multiemployer pension fund has already assessed partial withdrawal liability against an employer, what effect does a permanent closure of the business have on that liability? In other words, does the complete cessation of all covered work in the union's jurisdiction cure the partial withdrawal liability? Does it save the employer from triggering complete withdrawal liability going forward?

The subject matter of your post states: “Construction industry exemption, partial withdrawal liability”. The content of your post however does not reference the construction industry exemption. Normally if the construction industry exemption applies, there is neither partial nor complete withdrawal liability unless the employer continues to do the same type of work it had previously done, but no longer contributes to the plan.

Ignoring the construction industry exemption rules, when a multiemployer pension fund has already assessed partial withdrawal liability, and later the employer permanently ceases its operations, then the plan will assess complete withdrawal liability and a credit is given for the partial withdrawal liability previously assessed. See ERISA §4206(b) and the regulations issued thereunder for the credit that applies.

[Guest GordonCHI]

Where a multiemployer pension fund has already assessed partial withdrawal liability against an employer, what effect does a permanent closure of the business have on that liability? In other words, does the complete cessation of all covered work in the union's jurisdiction cure the partial withdrawal liability? Does it save the employer from triggering complete withdrawal liability going forward?

The subject matter of your post states: “Construction industry exemption, partial withdrawal liability”. The content of your post however does not reference the construction industry exemption. Normally if the construction industry exemption applies, there is neither partial nor complete withdrawal liability unless the employer continues to do the same type of work it had previously done, but no longer contributes to the plan.

Ignoring the construction industry exemption rules, when a multiemployer pension fund has already assessed partial withdrawal liability, and later the employer permanently ceases its operations, then the plan will assess complete withdrawal liability and a credit is given for the partial withdrawal liability previously assessed. See ERISA §4206(b) and the regulations issued thereunder for the credit that applies.

Thank you for your responses. Yes, I should have been clear. The employer at issue is engaged in building and construction and the plan at issue specifically indicates that it is a building and construction plan. It continues to operate but with a reduced labor force. The partial withdrawal liability was assessed for "permanent cessation of contributions on behalf of some or all bargaining unit employees." Now, the employer is contemplating shutting its doors. Doesn't the construction industry exemption mean that the employer can shut its doors and not incur any liability? How does that work when partial withdrawal liability has already been assessed?

[Bill Ecklund]

There shouldn't have been an assessment of partial withdrawal liability in the first place.

Whether or not a partial withdrawal occurs in the building and construction industry is determined by Section 4205 and Section 4208 of ERISA. Section 4205 has two circumstances under which a partial withdrawal can occur. The first is a 70% contribution decline and the second is a partial cessation of the employer’s contribution obligation.

A “partial cessation of the employer’s contribution obligation” in turn is determined by meeting one of two tests:

•The employer permanently ceases to have an obligation to contribute under one or more, but fewer than all Collective Bargaining Agreements under which the employer has been obligated to contribute under 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 transfer such work to another location, or

•An employer permanently ceases to have an obligation to contribute under the Plan with respect to work performed at one or more but fewer than all of its facilities, but continues to perform work at the facility of the type for which obligation to contribute ceased.

Once an employer is deemed to have partially withdrawn, then for purposes of the building and construction industry, the next determination is whether or not the employer is liable for this partial withdrawal. This is governed by Section 4208(d)(1) of ERISA, which provides:

An employer to whom Section 1383(b) of this title (relating to the building and construction industry) 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.

A partial withdrawal would occur if the Collective Bargaining Agreement still required contributions on behalf of the construction workers, but the employer was not making contributions on behalf of certain or all of its construction workers (for example reason of being double breasted).

A reduction of workforce is not a reason for assessing partial withdrawal. That is the main reason for the B & C rule. Workforces rise and fall in the construction industry all the time.

The Legislative history of the Building and Construction Industry exemption states:

"Therefore, the construction industry exception is designed to impose liability only on former contributors that continue to work within the plan’s area. It exempts from liability employers that cease contributions because they have no work in the area; there is no liability when a company goes out of business, is sold, or is simply without work for a time."

[Effen]

The partial withdrawal liability was assessed for "permanent cessation of contributions on behalf of some or all bargaining unit employees."

Bill, I took this to mean one of the bargaining units negotiated out of the plan. Therefore, I think they would meet the second criterea "An employer permanently ceases to have an obligation to contribute under the Plan with respect to work performed at one or more but fewer than all of its facilities, but continues to perform work at the facility of the type for which obligation to contribute ceased."

Assuming that is true, wouldn't that have created a partial withdrawal liability?

Gordon - can you be more specific about what triggered the partial.

[Bill Ecklund]

The partial withdrawal liability was assessed for "permanent cessation of contributions on behalf of some or all bargaining unit employees."

Bill, I took this to mean one of the bargaining units negotiated out of the plan. Therefore, I think they would meet the second criterea "An employer permanently ceases to have an obligation to contribute under the Plan with respect to work performed at one or more but fewer than all of its facilities, but continues to perform work at the facility of the type for which obligation to contribute ceased."

Assuming that is true, wouldn't that have created a partial withdrawal liability?

Gordon - can you be more specific about what triggered the partial.

That would trigger partial withdrawal liability. There are really only two things that can trigger complete or partial withdrawal liabilty - going non-union or negotiating the contribution to the plan out of the CBA

[Brian Haynes]

Assuming you have a building and construction industry pension fund and that the employer at issue is a qualifying construction employer, under Section 4208(d)(1) of ERISA, the employer is liable for a partial withdrawal only if the employer has a continuing obligation to contribute to the pension fund and continues doing what was previously covered work under the collective bargaining agreement in the relevant geographic area. The legislative history states that for such liability, the employer must change its work mix from union to non-union covered work. The non-construction industry facility take-out rule for partial withdrawals does not technically apply in the construction industry (although the facts causing a violation of the faciltiy take-out rule may be enough to trigger a construction industry partial withdrawal). Gordon stated that the pension fund assessed withdrawal liablity due to a "permanent cessation of contributions on behalf of some or all bargaining unit employees." He does not indicate whether previously covered union work was continued on a non-union basis. If it was, this may mean that there was etiher a facililty or bargaining take-out partial withdrawal for non-construction pension funds. These take-out provisions are technically inapplicable. In any event, as long as the employer (or any other member of its control group) did not continue on with the prior union covered work on a non-union basis (for any reason), the employer should not have triggered partial withdrawal liability in the construction industry. I assume the time period to arbitrate the withdrawal liability assessment has passed. If so, I would still argue to the trustees that under the case law, the trustees of the pension fund had a fidicuary obligation to determine whether the construction industry partial withdrawal liability rule applied before making the assessment and they did not do so. I would also argue that the assessment is not statutorily permissible (assuming that no work was continued on a non-union basis) and should be rescinded. Not sure these are winning arguments but I would make them. If the pension fund later assesses liability for a complete withdrawal, you may be able to contest the prior partial withdrawal liability in that context (if there is no complete withdrawal because no work was continued on a non-union basis then there can be no prior partial withdrawal under the same or similar facts). Hope this helps.

[Jim Dexter]

Assuming you have a building and construction industry pension fund and that the employer at issue is a qualifying construction employer, under Section 4208(d)(1) of ERISA, the employer is liable for a partial withdrawal only if the employer has a continuing obligation to contribute to the pension fund and continues doing what was previously covered work under the collective bargaining agreement in the relevant geographic area. The legislative history states that for such liability, the employer must change its work mix from union to non-union covered work. The non-construction industry facility take-out rule for partial withdrawals does not technically apply in the construction industry (although the facts causing a violation of the faciltiy take-out rule may be enough to trigger a construction industry partial withdrawal). Gordon stated that the pension fund assessed withdrawal liablity due to a "permanent cessation of contributions on behalf of some or all bargaining unit employees." He does not indicate whether previously covered union work was continued on a non-union basis. If it was, this may mean that there was etiher a facililty or bargaining take-out partial withdrawal for non-construction pension funds. These take-out provisions are technically inapplicable. In any event, as long as the employer (or any other member of its control group) did not continue on with the prior union covered work on a non-union basis (for any reason), the employer should not have triggered partial withdrawal liability in the construction industry. I assume the time period to arbitrate the withdrawal liability assessment has passed. If so, I would still argue to the trustees that under the case law, the trustees of the pension fund had a fidicuary obligation to determine whether the construction industry partial withdrawal liability rule applied before making the assessment and they did not do so. I would also argue that the assessment is not statutorily permissible (assuming that no work was continued on a non-union basis) and should be rescinded. Not sure these are winning arguments but I would make them. If the pension fund later assesses liability for a complete withdrawal, you may be able to contest the prior partial withdrawal liability in that context (if there is no complete withdrawal because no work was continued on a non-union basis then there can be no prior partial withdrawal under the same or similar facts). Hope this helps.

Unless the partial withdrawal was very recent, they're presumably past the deadlines for contesting the prior partial withdrawal so, right or wrong, they're probably stuck with it. The subsequent complete withdrawal should have no effect on the prior partial. The liability payments for the prior partial will simply continue unchanged.

[Guest adric]

Seems to me that the fact the fund assessed a partial withdrawal liability means that the employer did not meet the construction trade exemption. The rules for partial and total withdrawal are the same, so if fund assessed a partial, they will most likely asses a total.

[Effen]

Wow, I hear an echo.

[Chaz]

Seems to me that the fact the fund assessed a partial withdrawal liability means that the employer did not meet the construction trade exemption. The rules for partial and total withdrawal are the same, so if fund assessed a partial, they will most likely asses a total.

Spammer

[Effen]

I agree, but what is the point? Why would they spam that?

[Chaz]

I'm not sure. There are a bunch of these types of posts in these message boards. I can't figure out what they are trying to do.

I can confirm that there's nothing in ERISA or the Code that sheds any light on it.

[Guest saswaros]

Can anyone provide the specific legislative history citation and/or full text quotation supporting the statement above that seems to imply that the construction industry exception is not applicable to situations in which an employer transfers its work mix from union to non-union for purposes of partial withdrawal liability under ERISA Section 4208(d)(1)?

It appears from a plain reading of the statute that the only issue relevant to a partial withdrawal under the construction industry exception is whether the employer's obligation to contribute isfor no more than an insubstantial portion of its work.